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Regional cities in the North Island will be the first to see fibre optic cables laid around their streets as $200 million worth of contracts to roll out high-speed internet services are confirmed.

The deals that the Government’s Crown Fibre Holdings has struck are with the type of infrastructure players not traditionally associated with broadband – Northpower Limited and WEL Networks, the latter of which pitched for the business under the banner of Ultra Fast Fibre Limited

Hamilton, Tauranga, Whangarei, New Plymouth and Wanganui will be the first cities to see the construction of fibre optic networks, with work set to begin in Whangarei before Christmas. Work in larger cities will begin next year once those deals are nailed down.

The Q&A below outlines some of the detail and an idea of the wholesale price that will be put on the services. Note that the prices mentioned ($40 for an entry level fibre service 30Mbps downstream, 10Mbps upstream) will not be what service providers offer consumers and businesses. These providers will layer on costs of national and international access, customer service etc. It is still unclear as to how much fibre broadband packages will actually cost the end-user, that will depend on the long-term answers to questions 15 & 16 below.

Notable by their absence in the first of the fibre deals are the big telcos and in particular Telecom.

But at the Telecom Christmas party in Wellington last night, chief executive paul Reynolds was upbeat about Telecom’s prospects for being a part of the fibre plan and even suggested Telecom, which he pointed out had sunk $4 billion in capital expenditure into New Zealand in the last four years, had an obligation to the country to be involved.

Anyway, here’s the Q&A on today’s developments from Crown Fibre Holdings.

1. What is the area covered by UltraFast Fibre Limited?

This will cover Hamilton (including Cambridge and Te Awamutu), Tauranga, Tokoroa, New Plymouth, Hawera and Wanganui. This accounts for just over 14 per cent of UFB premises (14.2%).

2. What is the area covered by Northpower Limited?

This will cover Whangarei – accounting for just over one and a half per cent of UFB premises (1.6%).

3. Are there any deployable assets which will be included in these agreements?

Yes – the LFC covering Whangarei has an option to buy Northpower’s assets subject to technical due diligence.

4. What will be the value of these agreements?

The value exceeds $200 million.

5. What is the agreed pricing for fibre services?

UFB pricing is at wholesale level and end users should bear in mind that prices of retail UFB services will reflect non-Local Fibre Company costs, such as national backhaul, international bandwidth, provisioning, billing, customer care and so forth. CFH, Northpower and UltraFast Fibre intend to publish final UFB wholesale prices prior to initial sales of retail UFB services. The following are indicative of expected products and price ranges and are initial price ranges only. Price ranges are per month excluding GST.

Consumer

The price for the UFB entry-level product (30 megabits per second (Mbps) Downstream / 10 Mbps Upstream with a 2.5 Mbps committed information rate will be $40 or less. This is lower than the current wholesale price for “Naked DSL” (Enhanced UBA 40) services.

The UFB 100Mbps household product (100 Mbps Downstream / 50 Mbps Upstream with a 2.5 Mbps committed information rate) will be priced at $60 or less. This is approximately the current wholesale price for “Clothed DSL” (UBA plus POTS), depending on the end user’s location. Subscribers would recognise this service as ADSL2+ bundled with a standard home phone line.

There will be no connection fees for households connecting to UFB.

Business

Business products will be priced considerably below existing Dark Fibre where this is available in the market. Premium Layer 2 services, such as 100 Mbps and 1 Gigabit per second symmetrical services, will also priced competitively. For example, a 1 Gigabit service will be priced at or less than $600, which is about half the minimum current wholesale price.

Schools

UFB products for schools are expected to be priced in a similar manner to business products. However, prices will be lower than for businesses because of the Government’s recent decision to cover 100% of the cost of the fibre “drop” from a school’s boundary to its server room.

6. What will be the open access arrangements in these areas?

The Open Access Deed of Undertaking sets out the open access and non-discrimination framework for the LFCs. The Deed of Undertaking which has been agreed by Northpower Limited and by WEL Networks on behalf of UltraFast Fibre Limited is available on the CFH website at www.crownfibre.govt.nz. It is enforced by the Telecommunications Branch of the Commerce Commission

7. Does the announcement reflect final and binding offers received from the Government’s proposed partners? Will details of the agreements between CFH and its partners for the formation of the two new Local Fibre Companies (LFCs) be made public?

Yes, final and binding offers have been received from Northpower and from WEL Networks, parent company of UltraFast Fibre Limited.

A high level summary has been published on the respective websites of CFH, Northpower and WEL Networks.

8. Given the government agreed to regulatory forbearance for LFCs until the end of 2019, what effect will this have on prices?

Competitive prices are set through the competitive tender process and are set at levels to drive uptake on the UFB. The prices are regulated through a contract between CFH and the LFC partner. Regulation of telecommunication prices through contract is not unusual in New Zealand, notable examples include Home Line pricing under the original Kiwi Share Obligations with Telecom which is now part of the TSO. Non-discrimination is governed by the Open Access Deed of Undertaking with the Crown which is enforced by the Telecommunications Branch of the Commerce Commission. The Deed incorporates the following aspects:

* LFCs are wholesale only, so they have an incentive to price to drive uptake in order to build revenues.

* Prices will be published to ensure they are transparent to service providers and end users.

* LFCs must be compliant with the Open Access Deed of Undertaking covering Open Access and non-discrimination.

* The general UFB policy is to drive uptake, and prices have been set through a competitive process to meet this policy objective.

Proposed changes to the Telecommunications Act will provide for regulation of prices by the Commerce Commission after the regulatory forbearance period.

9. What is a Local Fibre Company (LFC)?

An LFC is a company owned by Crown Fibre Holdings on behalf of the Government and the partner selected to deploy, own and operate a fibre-to-the-premise network in one or more urban areas of New Zealand. It sells access to point to point dark fibre or Layer 1 Services, and lit fibre (containing electronics), known as Layer 2 Services.

10. What is the process for establishing the two LFCs?

The LFCs will be newly incorporated limited liability companies incorporated under the Companies Act 1993, in which CFH and the partner will be shareholders. Each LFC will be incorporated before the end of the year. Details of where the LFCs will be physically located, and how they will be staffed will be made public in due course

11. When will the physical deployments of fibre begin and where?

The deployment will start in Whangarei before Christmas and in Hamilton, Wanganui and Tauranga in early 2011.

12. Why has a binding offer with Alpine Energy not been reached?

That is a matter between CFH and Alpine Energy. Alpine Energy remains a shortlisted party and CFH is in discussions with Alpine.

13. Where does this leave the other parties to the Central North Island Fibre Consortium?

The commercial arrangements between WEL its subsidiary UltraFast Fibre Limited and the other participants in the Central North Island Fibre Consortium (Waipa Networks and the Hamilton Fibre Network) are a matter for those parties.

14. When is a recommendation regarding Alpine Energy expected to be made to Ministers?

A recommendation to Ministers would only be made if a final binding offer had been made by Alpine and one has not yet been made.

15. Is there any interest from retail service providers (RSPs) or ISPs in providing services on these networks?

CFH has been liaising with both RSPs and ISPs and identified strong interest in selling UFB wholesale products. Northpower, for example, already has keen and active service providers delivering retail services in the marketplace.

16. What measures have been taken to ensure uptake of services on these networks?

UFB fibre will be competitively priced so as to attract users. CFH and the Government are also working with industry and key stakeholder groups on a range of initiatives to maximise potential uptake. Examples include:

* the recent decision to provide 100 per cent Government funding for the cost of the fibre connection from the street into school buildings for schools connecting to UFB.

* the whitepaper released by CFH and TUANZ (the Telecommunications Users Association) on 3 December on potential UFB demand in the business sector, in which 82 percent of all respondents reported they were likely to, highly likely to or definitely would connect to UFB within a year of it becoming available.