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The New Zealand government Tuesday outlined its proposed model to bring high-speed broadband access to three quarters of the nation.

Communications and Technology Minister Stephen Joyce said the government would establish an investment company that would team up with the private sector to spend NZ$3 billion (US$1.7 billion) over a decade on a new network.

He said at least half of the investment would come from the government.

"This model aims to provide government investment on favorable terms, while minimizing government involvement in commercial operations which we believe the private sector is better positioned to direct," he said.

Under the proposal, the company, Crown Fibre Investment Co., will invest alongside private sector co-investors in regional fiber companies that will deploy and provide access to fiber optic network infrastructure in the 25 towns and cities covered by the initiative, Joyce said.

He said CFIC would operate in an open, transparent and contestable process to select local partners.

Selections would be based on the amount of additional fiber coverage proposed, capital structure, commercial viability, consistency with government objectives and the track record of the partner.

Broadband penetration is low in New Zealand and speeds are generally slow while access in rural areas - important in the agriculture-dominated economy - is poor.

"This is a game changing initiative by the government," said Rosalie Nelson, telecommunications research manager at IDC Research. "It effectively leads to the commoditization of access. It changes the competitive landscape."

Nelson said the idea to build a network that will deliver speeds at 100 megabits per second - around 50 times faster than generally available - was an act of faith given no evidence of demand or a business case for such a service. Telecom Corp. of New Zealand (TEL.NZ), the country's dominant telecoms operator, would have to decide whether to join the scheme, or continue its current plan which was to build fiber to street cabinets servicing 84% of lines by 2011/2012 that will deliver speeds of at least 10 megabits per second.

Telecom Thursday said the government announcement was welcomed by all players as giving further clarity. It said it would evaluate and assess the proposal in detail to prepare a submission. The company also said it would be reviewing the opportunities to work with CFIC to extend the reach of its own network and to use fiber networks others may build.

Joyce said the proposed model would ensure all telecommunications companies could use the fiber.

Nelson said that government participation in building a network meant the business case was more likely to be longer-term, fitting the profile of utility companies more than telecommunications companies.

Auckland based energy network company, Vector Ltd. (VCT.NZ), which already has 500 kilometers of fiber in Auckland and plans another 300 kilometers in a deal with mobile phone company Vodafone Group PLC (VOD), is likely to be a prime candidate to team up with CFIC, according to Nelson.

Officials at Vector weren't immediately available for comment.

Industry heavyweights Telecom, Vodafone and TelstraClear, a unit of Australia's Telstra Corp. (TLS.AU), had earlier commissioned their own study into broadband which concluded their different network investment plans would deliver broadband speeds adequate for the needs of everyday internet users without the need for a boost from the government. Vodafone said it will respond to the proposal later, while a Telstra official wasn't immediately available for comment.

A report by consulting firm Castalia questioned whether high broadband speeds for households would deliver significant economic benefits.

But New Zealand Institute research director Benedikte Jensen said he expected government funding "will be matched by at least an equal amount of private sector investment to transform access to broadband services for New Zealanders".

The think tank previously estimated a high-speed broadband network would generate additional economic value of NZ$2.7 billion to NZ$4.4 billion each year, "with further gains possible through enabling innovation."

"The proposed investment in broadband is a crucial step to propel New Zealand on to a higher growth and productivity path coming out of the recession," Jensen said.

 
   -By Simon Louisson, Dow Jones Newswires; 64-4-471-5990; simon.louisson@dowjones.com 
 

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