Overview
1. SUMMARY
The Internet has become one of the most important communications technologies available in our society. It is a place where we not only accesses information and opportunities, but also where we access basic rights, exercise our freedoms, and realise our potential.
However, in New Zealand, a broadband monopoly has damaged the quality of our access to the Internet, with high prices and artificial limitations on data. Access is not yet universal, as many rural areas and economically vulnerable communities lack infrastructure and resources to get online, creating a divide between the “digital haves” and the “digital have-nots.”
The Internet Party is committed to pursuing policies that make New Zealand’s Internet cheaper and available for universal access, unlocking opportunities for economic growth, social justice, education, and, above all, fairness.
2. PROBLEMS IDENTIFIED
2.1. High cost of Internet access
New Zealanders are paying too much for access to the Internet relative to other costs of living. Taking into account the quality of service and caps on data, these high Internet costs are putting a strain on many household budgets and leaving some people with diminished access to information.1
Many other countries have better Internet service at lower costs thanks to competition. The problem in New Zealand is that there is a monopoly on bandwidth. The only broadband connection to the outside world is provided solely by the Southern Cross Cable, half owned by Telecom, while Chorus is the only nationwide fixed-line local access network provider.
Under this bandwidth monopoly, all Internet service providers (ISPs) have no choice but to pay inflated prices for their connection, which is passed on to consumers. ISPs have to pay much higher prices than their counterparts in Australia, and as such, New Zealanders have to pay as much as 60% more than Australians for the fastest, high cap plans.2
Although prices have been dropping in nominal terms in recent years, in fact they are rising in terms of the overall increasing data consumption and relative cost of living prices.
This bandwidth monopoly has damaged New Zealand by preventing genuine competition among service providers, which in turn has a negative impact on business, economic growth, and innovation. The bandwidth monopoly will prevent New Zealand from building a robust digital economy, let alone be sufficient to power the country to become a global leader.
Costs for the roll-out of fibre broadband can be lowered by addressing systemic issues in collaboration with the Government’s four partners3; for example, by resolving issues related to connecting multi-unit dwellings and resource consent for overhead cabling. At the same time, there are lost opportunities by overbuilding existing open access fibre networks such as thelink4 and Inspire.Net.5
2.2. Universal access
Many New Zealanders lack adequate access to the Internet, either due to low-quality service availability in non-urban areas, or the inability to afford the high costs of regular access. Internet access issues are particularly acute in semi-urban areas and those located close to the cities, which often lack the network connections to allow for adequate and affordable access.
Those unable to get online with good service are prevented from achieving unlimited access by artificial data caps which reinforce the profits of the bandwidth monopoly. As a result, a digital divide is widening in New Zealand between the digital haves, and the digital have-nots.
2.3. Low expectations
A history of low data allowances for Internet users, particularly for mobile, has developed a mindset of Internet scarcity amongst New Zealanders. In turn, this has limited what New Zealanders do, and expect to do, online. People therefore have low expectations from their Internet access and are more easily satisfied. In turn, this mindset creates a barrier for New Zealanders to create and benefit from the digital age.
One clear example of low expectations and perceived lack of a problem is the low uptake of ultra-fast (fibre optic cable) broadband. Many people are unable to see value from faster Internet speeds, even at close to zero marginal cost over existing copper-based Internet connections. Another example is the low level of mobile data usage and relative satisfaction with monthly data allowances of 500 MB to 1.5 GB.
Low expectations are reflected in a limited appreciation of business opportunities and challenges the Internet poses to all industries. Low global inter-connectedness and a lack of dynamic innovation are some of the results.
2.4. Net neutrality
‘Net neutrality’6 is the principle of treating all Internet traffic equally. This principle can have different interpretations and some of the implications are country-specific. From a New Zealand perspective, net neutrality can be considered as requiring Internet Services Providers to not discriminate between different providers of the same type or class of services, for example favouring its own video streaming services over those provided by another service provider.
The principle of net neutrality is widely considered to be a fundamental prerequisite for continued innovation enabled by the Internet and to offer customers the best services.7 Concerns have been recently sparked by a move by the regulator in the United States to undermine net neutrality.8
There is no evidence that the principle of net neutrality is currently under threat in New Zealand or that there is an actual barrier to innovation on that account. There may well be in the future. For the time being, the Internet Party will keep a close eye on the evolving Internet market rather than favour preemptive legislation or regulation.
3. RELEVANT DATA / RESEARCH
3.1. Cheaper Internet
3.1.1. Faster, pervasive Internet boosts economic growth
According to studies commissioned by InternetNZ, faster and higher quality Internet has significant economic benefits, providing for a “better match of production of goods and services with what people want, and lowering the cost of finding information”.9 The studies found that countries can receive between a five percent and nine percent boost in gross domestic product (GDP).
Additionally, in a 2012 Alcatel-Lucent study on Ultra Fast Broadband (UFB) and Rural Broadband Initiative (RBI), it was found that faster Internet could add as much as $5.5 billion to the NZ economy over the next 20 years, paying for the programme itself.10 It calculated that the economic benefits to New Zealand end-users of the high-speed broadband applications considered would amount to $32.8 billion over the same period.
A global study of the economic impact of broadband by the International Telecommunications Union concluded that “these analyses confirm that broadband has a directionally positive economic impact… [there] would appear to be a direct relationship between broadband penetration and strength of economic effect”.11 This finding emphasises that pervasive availability of Internet access is critical in determining the extent of broadband’s economic benefits for countries.
A 2011 McKinsey study found that the Internet is driving economic growth, noting: “The Internet accounted for 21% of the GDP growth in mature economies over the past 5 years.”12 Further to that there was also a clear connection between the maturity of the Internet ecosystem and rising living standards. The report noted that the Internet “has enabled fundamental business transformations that span the entire value chain in virtually all sectors and types of companies - not just online ones”.
3.1.2. Low level of data caps
In a 2011 discussion paper commissioned by InternetNZ on why New Zealand has data caps, noting the relatively low levels of data caps compared to other countries, it was surmised that two possible reasons for this are “the incumbency of Telecom in the copper local loop market and the reliance on a single submarine cable for almost all international transit”.13
Since then, Chorus has taken on the monopoly of copper lines, while the single international submarine cable remains unchanged. Also, Telecom has finally introduced Internet access plans with no data caps across its standard plans which could lead to ‘unlimited’ Internet plans becoming the norm.14
The lack of competition as a key reason is confirmed by the two reasons put forward in the InternetNZ paper by Internet Service Providers (ISPs) for the existence of data caps:
- To prevent a “tragedy of the commons” that is, a few heavy users dominating the use of a fixed, low level of bandwidth resources to the detriment of other users.
- To segment the market by offering a better product to consumers who are willing to pay more, which maximises ISP income while providing for entry-level plans that are attractive to consumers who might otherwise not have broadband.
Data caps are by far the predominant differentiator in competitive market offerings. There is little, if any, competition based on other parameters of Internet access such as connection speed or latency or nature of customer service.
The low level of data caps in rural wireless15 Rural Broadband Initiative (RBI) areas relative to urban areas has been identified as a major concern.16
3.1.3. Cost of Internet access
Prices for a bundle with 60GB of data have dropped 14% over the past two years, according to the latest Commerce Commission benchmarking report on retail prices of fixed line services in mid-2013.17
“However, these bundles are still priced 30% higher than the OECD average. For broadband bought without phone services – called naked broadband – New Zealand’s pricing for average data consumption is more competitive.
“For customers with a 60GB broadband plan, prices have dropped 41% in two years and are 4% less than the OECD average; however, these prices are available only to subscribers with an on-account mobile.”
The latest Commerce Commission benchmarking report on retail prices for mobile services highlights how much higher New Zealand mobile Internet prices are compared to other OECD countries.18
“A typical 1.5GB per month plan for mobile data for laptops and tablets, was about 10% above average. The price for a 6GB data plan was one of the highest in the survey, about twice the average.”
Broadly speaking, the larger the data cap the more expensive the relative prices in New Zealand compared to OECD averages. This is true for both fixed line and mobile Internet access, but far more so for the latter.
Wholesale prices from monopoly New Zealand access providers are regulated. Fibre and fixed wireless are contractually set by the Government under UFB and RBI respectively. Prices for copper-based Internet access provided by Chorus are due to be reduced from December 1, 2014, but are subject to disputes over the extent the regulated prices should drop.
3.1.4. Internet speeds
Internet access speeds for fixed lines are dependent on the type of access technology, according to the February 2014 Broadband Report by TrueNet (funded by the Commerce Commission).19 In order of decreasing speed, they are fibre, cable, VDSL, and ADSL. Fibre notably outperforms all others for upload speeds.
Compared to the US and UK, New Zealand speeds at peak congestion time for ADSL Internet connections do not slow down as much compared to low congestion times.20 This is a positive aspect of Internet access in New Zealand.
Akamai’s latest State of the Internet report for the third quarter of 2013 puts New Zealand’s average broadband connection speed at 5.1 Mb/s.21 While that’s an improvement of 31 percent on a year earlier, it still means New Zealand is 46th globally. Comparatively, South Korea is at 22.1 Mb/s and Australia 43rd with 5.5 Mb/s. However, New Zealand is better than the global average broadband speed of 3.6 Mb/s.
The fastest fibre speeds contracted to be delivered under UFB are 100 Mb/s (down) and 50 Mb/s (up).22 Globally, 1 Gb/s is quickly becoming the standard. There appears to be no reliable, independent data on Internet speeds actually experienced by people in rural areas under the RBI project.
3.1.5. International bandwidth monopoly
Almost the entire international Internet traffic from/to New Zealand crosses over the monopoly Southern Cross Cable Network.23 The company is registered overseas and half-owned by Telecom NZ. Its submarine cable system connects New Zealand to Australia and the US. It is currently engineered to last until at least 202524 and the company expects “that sometime towards the end of this decade we will look to building a third cable to complement the existing two cables.”25 (The two cables form a single cable system.)
The long-term traffic growth is 35 percent per year, compounded. Prices have declined over the same period at an average of 22 percent a year.26 New Zealand ISPs consider the price drops to insufficiently reflect traffic increase, as the bandwidth cost per user is actually increasing.27
The company says: “We establish NZ market prices in the very competitive Australian and Hawaiian capacity markets and apply those prices to the NZ market.” On the other hand, average prices actually paid by New Zealand ISPs for international capacity are significantly higher than those paid by Australian ISPs.28
The same report also states that a new entrant in a monopolised market “will definitely foster competition, create innovation and provide lower prices for users”. Currently, there are plans for several others, but none is actually being built yet.
This includes a planned cable between Auckland and Sydney by three big carriers (Telstra, Telecom, and Vodafone)29; Hawaiki Cable30 connecting Whangarei, Sydney, Oahu (Hawaii), and Oregon (US); and SubPartners’ APX-East.31
3.1.6. UFB, RBI coverage area
The Ultra-Fast Broadband (UFB) is an open-access network that is building fibre optic cable to premises. It aims to provide ultra-fast broadband to 75 percent of New Zealanders by 2020. Schools, hospitals and 90 percent of businesses will be connected by 2015. Homes and the remaining 10 percent of businesses will be connected by 2019.32
The roll-out is being undertaken in partnership with Chorus and three Local Fibre Companies - Northpower, Waikato Networks, and Enable Services. UFB is being built in the most densely populated parts of metropolitan areas, with 33 cities and towns by largest population covered.33 The Government is contributing $1.35 billion to the initiative.
The Rural Broadband Initiative (RBI) promises to deliver broadband to 252,000 rural households at prices and levels of service comparable with urban areas over five years. It will deliver broadband peak speeds of at least 5 Mb/s to 86 percent of rural homes and businesses.
Vodafone has been contracted to deliver 3G-based fixed wireless broadband, with 4G coverage expected in the future.34 As part of RBI, Chorus will roll out fibre to priority users and to new Vodafone mobile sites.35 # Together, UFB and RBI promise to bring “faster broadband” to 97.8% of New Zealanders.
3.2. Universal access
3.2.1. Positive social impact of expanding Internet access
The Internet and its many applications “have had a profound impact on the social fabric of the developed world”, according to a 2014 study by Deloitte.36 These often intangible benefits can have strong impacts at the personal and community level and the economic and social transformation promoted by mobile and internet access can address a number of other social issues currently affecting developing countries.
Information and Communication Technology (ICT) has long been recognised as promoting and facilitating social inclusion, that is, the participation of individuals and groups in society’s political, economic and societal processes.
“One way in which ICT expands inclusion is through effective public services that rely on ICT infrastructure and through digital inclusion, that is, the ability of people to use technology. These three aspects are deeply intertwined, and they span dimensions as diverse as disaster relief, food security policies, environmental programmes, as well as citizenship, community cohesion, self-expression and equality.”
3.2.2. Internet penetration
According to the report Household Use of Information and Communication Technology: 2012 from Statistics NZ, in 201237:
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Four out of five New Zealand homes had access to the Internet. With about 1.7 million homes and 1.3 million connected, this implies 400,000 homes had no Internet connection (census data in 2013 calculated this as 421,152 households38). The main reason remains a lack of interest. However, this figure is steadily declining, while concern over cost has increased, deterring more than a third of households from getting connected. An estimated 200,000 households in 2012 were not accessing the Internet due to costs being too high or a lack of confidence, knowledge or skills. Further, some 69,000 households with more than 200,000 school-aged children were without access to the Internet.
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Two-thirds of rural households had a broadband connection. Conversely, one-third of rural households in 2012 did not.
3.2.3. Rural-urban, income divides
According to the World Internet Project New Zealand report for 2013, 92 percent of respondents said they currently use the Internet.39 Of the remainder, three percent are ex-users and five percent have never used the Internet.
More than half (52 percent) agreed that the Government should allocate funds to enable all New Zealanders to have access to Internet services, with 24 percent agreeing strongly with this idea.
The report notes it is young people who are most affected in their Internet usage by living in less densely populated areas, with the rural-urban divide playing a greater role than the income divide in their case. This is further reflected in only four out of 10 rural Internet users saying they are satisfied or very satisfied with the speed of their Internet connection.
Income has a clear and relatively linear impact on whether people use the Internet or not, and if so, how engaged they are online. Household income has an even stronger effect when looking at those aged 65 and over.
In terms of ethnicity, Māori and Pasifika New Zealanders have higher rates of Internet non-use. Notably, non-use is highest in small towns (15 percent), even higher than those in rural areas (10 percent).
Additionally, the Computers in Homes Programme has a map of households with school-aged children who do not have access to the Internet.40 The spatial distribution of the digital divide further highlights the rural-urban divide.41
3.2.4. Internet access as a human right
As declared in 2011 in a United Nations Human Rights Council report, access to the Internet represents a basic human right.42 It is the most powerful instrument of the 21st century for increasing transparency with regard to how power is exercised, while the opportunity for access to information and the facilitation of citizen participation is essential in building democratic societies. The Internet, writes Frank La Rue, “contributes to the discovery of the truth and progress of society as a whole”.43
4. EXAMPLES OF GLOBAL LEADERSHIP
4.1. South Korea
In 1960, less than 1 percent of South Koreans had access to a telephone. Today, the country features 51.7 Mbps download speeds, one of the fastest in the world – four times faster than the US, and more than 30 percent less expensive. South Korea became the world’s Internet leader thanks to good state planning, an unobtrusive regulatory model, strong private competition, and subsidies supporting access for low-income citizens. South Korea also ensures an open network, requiring service providers to share their lines and infrastructure, which allows new competitors to enter the market.
4.2. Macao & Israel
According to a 2013 report by the International Telecommunication Union (ITU), Macao and Israel offer the cheapest Internet access in the world, at $8.50 and $8.80 per month, respectively.44 Each country’s capability to deliver low prices is dependent on strong infrastructure investment and healthy competition.45
4.3. Malaysia
Malaysia has had success reducing the cost of access to broadband Internet through indirect subsidy programmes. As part of their National Broadband Initiative, low income young people aged 21 to 30 been able to apply for a MYR 200 (about $80) rebate off selected smartphones costing a maximum of MYR 500. This initiative aims to reduce the price barrier for those who do not yet use a smartphone. Another flagship endeavour distributes free Netbooks to low-income households to enable them to access broadband services. The IPU report states “although these initiatives do not target the cost of the broadband subscription directly, they help reduce the total cost of ownership of broadband services”.
4.4. Romania
Even though Romania’s economy is smaller than New Zealand’s in terms of GDP, and despite challenging corruption issues, the country is currently ranked third in the world for download speeds (at 57.68 Mbps). According to a 2012 case study from the ITU on Romania, the government was able to deploy a highly successful “universal service strategy” which built more than 600 “telecenters” where lower income citizens could get make calls and get online at minimal cost.46 They also classified mobile carriers under their universal service directive, and rolled out a strategy to develop a competitive market by providing public support in disadvantaged areas, promoting Romania as an important region for e-business services, and encouraging the development of relevant content for Romanian users.”
4.5. BARN, England
Broadband 4 Rural North (BARN) is an innovative community-led project to bring high-speed fibre Internet connectivity to domestic and business properties in rural Lancashire, England.47 Tests on the network in February 2013 showed download speed of more than 917 Mb/s and upload speed of 530 Mb/s. A company was formed to raise funds from the sale of shares and own and operate the network. Much of the labour to dig trenches was supplied by local volunteers, who were rewarded with the chance to get a connection to their families or businesses. Some were awarded shares. Farmers and other landowners allowed free access for buried cables to cross their land.48
5. POLICY PROPOSALS
5.1. Reduce Internet costs by 50%
Additional Internet submarine cable: The Internet Party wants at least two fibre optic submarine cable systems connecting New Zealand to Australia and the US to end the bandwidth monopoly. Aims include a drop in prices paid by New Zealand ISPs for international bandwidth, greater supply diversity, and more innovative business models.
It is possible but unlikely that private business interests can deliver this without further government support or intervention. If the current plans do not lead to construction of adequate new cable systems, the Internet Party will move forward with a public-private plan to fill the gap.
If additional cables are constructed but do not lead to a drop in prices of international bandwidth to New Zealand ISPs, the Internet Party will call for government purchasing of bulk bandwidth by a public-private partnership, supplying it at low cost domestically without limitations.
Reduce input costs of network and service providers: The Internet Party will collaborate with the Internet industry to analyse and remove systemic issues driving up their input costs. This will also include addressing inefficient and costly domestic Internet traffic flows. It is anticipated that there will be a joint plan enabling a number of immediate actions, while others will require a sustained effort over a number of years.
To complement this bottom-up effort, the Internet Party will require a top-down creation of a National Internet Architecture Plan. This will set out targets for domestic Internet infrastructure, systems, and traffic exchange points. It will bring the same level of strategic thinking and robust planning associated with other infrastructure of national significance, such as transport, to Internet infrastructure in New Zealand.
The Internet Party will seek inclusion of a new category of ultra-fast broadband (fibre) service included in the UFB contract with the Government’s four partners. This will provide for 1 Gb/s download and 100 Mb/s upload speeds. Rather than limiting ‘Gigatown’49 to one city in New Zealand, the whole country will be able to benefit from true ultra-fast broadband speeds.
Increasing competition: The Internet Party will support strong measures to improve competition among Internet service providers, leading to lower prices and a higher quality of service. We will review governing legislation, specific to both telecommunications and general competition law, to create a regulatory model based on the European Commission regime that focuses on encouraging new entrants to the market and providing diversity of supply.
The Internet Party will review specific barriers to competition. For example, it will direct a review of the operation of Mobile Virtual Network Operators (MVNOs), including access to pre-pay customers. Additionally, the Internet Party will review radio spectrum allocation to provide spectrum for innovation, regional flexibility, and new technology capabilities.
5.2. Universal access
Fibre for all: The Internet Party believes that fibre broadband is essential infrastructure if New Zealand is to become a global leader in the digital age. The goal is fibre to the premises of the 97.8 percent of New Zealanders covered by the UFB and RBI programmes. While UFB is expected to provide fibre to 75 percent of New Zealanders by 2020, the Internet Party will deliver fibre to the remaining 22.8 percent in the RBI coverage area.
Rather than a single, “one size fits all” national programme, this will be achieved by co-ordinating a number of individual initiatives to:
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Encourage and support Local Fibre Companies to expand their coverage areas.
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Similarly, encourage and support companies with fibre laid before the UFB programme.
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Catalyse, support, and remove obstacles for communities to self-organise, similar to BARN50 or other local initiatives.
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Build spurs from fibre laid by Chorus under RBI.
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Develop partnerships with iwi, marae, and local businesses.
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Invite innovative proposals from local communities and continuously look globally for successful examples.
Note: this policy proposal will require new investment by both government and private business interests. According to a preliminary estimate, a total of $200 million of new government investment over five years will be required, which will be repaid over the following 10 years. A part or the whole of the government investment could also be recouped by extending the Telecommunications Development Levy of $50 million per year beyond its current expiry.
Internet for all: The Internet Party is committed to supporting Internet access for all New Zealanders unable to afford it or lacking the necessary confidence, knowledge or skills. This is estimated at 200,000 households, of which 69,000 households have school-aged children. Accordingly, two paths will be followed:
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Significantly step up the Computers in Homes programme so that all households with school-age children opting for support to obtain Internet access at home and training will be covered within five years.
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Expand public Internet access facilities by encouraging and supporting schools, libraries (Aotearoa People’s Network Kaharoa), marae, councils, and community centres. This will be funded by a mix of local business sponsorship and direct government support.
Note: this policy proposal will require new investment by both government and private business interests. According to a preliminary estimate, a total of $50 million of new government investment over five years will be required.
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Crown Fibre Holdings is working with four partners: Telecom New Zealand (the incumbent local exchange carrier, now required to spin off its service provider component), Enable (a service provider owned by the City of Christchurch), WEL (a publicly-owned power company), and Northpower (a publicly owned power company).
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https://internetnz.net.nz/ecoresearch
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http://www.crownfibre.govt.nz/getting-ufb/rollout-timetable/
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http://www.aut.ac.nz/__data/assets/pdf_file/0007/424816/wipnz2013final.pdf
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http://www2.ohchr.org/english/bodies/hrcouncil/docs/17session/A.HRC.17.27_en.pdf
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http://www2.ohchr.org/english/bodies/hrcouncil/docs/17session/A.HRC.17.27_en.pdf
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http://www.itu.int/en/ITU-D/Statistics/Documents/publications/mis2013/MIS2013_without_Annex_4.pdf
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https://www.itu.int/ITU-D/treg/broadband/BB_MDG_Romania_BBCOM.pdf