Govt starts seeking ultra-fast broadband partners

"I am pleased to kick off the process for seeking private sector partners who will co-invest with the government in ultra-fast broadband fibre infrastructure," says Mr Joyce. 

"This initiative will be a significant enabler of future economic growth, productivity improvements and overall global competitiveness."

In September the government released its final proposal for the ultra-fast broadband initiative. The government's investment is expected to be at least matched by private sector funding by way of a co-investment model in open access infrastructure. 

The "Invitation to Participate" (ITP) provides the terms and conditions of the government's investment, including technical specifications and the government's preferred commercial model for co-investing with partners in a Local Fibre Company (LFC). 

"The ITP is based upon an innovative commercial model that will see the government largely fund the deployment of fibre into communities, and the Crown's LFC partner gradually taking a greater share in the LFC as it connects customers. This risk sharing model overcomes the major hurdle of uncertain demand," says Mr Joyce.

"The commercial model is complex and warrants careful consideration.  To assist interested parties in understanding the detail of the ITP, the Ministry of Economic Development will be available for briefings in Auckland, Wellington and Christchurch over the next few weeks."

The LFC will deploy, own and operate the open access network in a given coverage area.

The detailed ITP documentation is available on the Ministry of Economic Development's website at www.med.govt.nz/ultra-fast-broadband.

Persons intending to participate in the partner selection process must notify the Ministry of Economic Development of their intention by Friday, 13 November 2009.  Proposals must be lodged by 29 January 2010.
 

Questions and Answers

 

About the Government's Ultra-Fast Broadband Initiative

 

•1.    Why is the government investing in broadband infrastructure?

Private sector companies have decided, on behalf of their shareholders and as a commercial decision, not to invest in a nationwide network of fibre-to-the-home at this point in time.  The government understands this, and so wishes to assist and work with the private sector in improving the business case for ultra-fast broadband because of the public benefit to be gained from such a network. 

The government plans to fund, with private sector partners, the provision of widespread open access dark fibre services, which will facilitate the best possible competition outcomes in emerging markets and encourage innovation in wholesale and retail services.

•2.    What is the government's objective for dark fibre infrastructure investment?

To accelerate the roll-out of ultra-fast broadband to 75 percent of New Zealanders over ten years, concentrating in the first six years on priority broadband users such as businesses, schools and health services, plus greenfields developments and certain tranches of residential areas.

•3.    Why is the government only investing in dark fibre?

Government investment at that level will facilitate the competitive commercial provision of ultra-fast broadband services over fibre with the minimum regulatory intervention.  In very simple terms, this is the most "raw" access to the underlying infrastructure, and provides the best competition outcomes because the wholesale customer has full control and flexibility and has the ability to innovate in downstream services. 

•4.    What is meant by open access?

Open access is a key principle underlying the government's ultra-fast broadband initiative. It is critical that the networks built provide the highest levels of interoperability with other networks and are future proofed.  LFCs will be required to deal with the market in a fair and equitable manner, providing for equality of access and allow consumers to switch easily between providers. 

 

About the commercial model

 

•5.    What are the key features of the commercial model?

The commercial model is designed to address the key economic problem that is a barrier to private investment: the risk of uncertain uptake.  The commercial model sees the Crown shoulder a significant portion of that risk, with the partner only required to invest in the network as customers connect.

In return, the private partner will meet the LFC's establishment costs and shoulder the majority of the deployment and execution risk - factors that the private sector is best placed to manage. 

This arrangement will last for the first 10-years of an LFC's life, after which time the Crown and partner will revert to more conventional shareholding arrangements.

The commercial model provides strong incentives for the private partner to drive uptake, and provides a "capital recycling" mechanism that will allow the Crown's contribution to be invested more than once.

Further detail of the commercial model is contained in Appendix 2 of the ITP, with a high level description of the practical effects of the model described in paragraphs 100-115 of that Appendix. 

 

•6.    What is the Local Fibre Company's role?

The LFC will:

• own, operate and maintain the open access dark fibre network in the LFC's coverage area
• sell access to Layer 1 services and, if the LFC chooses to do so, sell Layer 2 services over its network
• connect any and all customers in its agreed coverage area seeking access

 

•7.    What is the ‘Government Share'?

Separately from any Crown Fibre Holdings shareholding, the LFC will issue the government with a single ‘Government Share', the purpose of which is to ensure that open access and other important requirements continue to apply after the Crown is no longer a shareholder.

About the Partner Selection Process

•8.    What is the process for partner selection?

The release of the ‘Invitation to Participate' (ITP) starts the process of partner selection.  Crown Fibre Holdings will evaluate the proposals received and negotiate detailed agreements with shortlisted parties.  CFH will then make final partner selections.  Initial agreements are expected to be completed by mid-2010.

 

•9.    How do I notify the government of my intention to participate?

Persons interested in responding and submitting a proposal are required to submit a Notice of Intention to Participate in the partner selection process by 13 November 2009.  Section 4.1 of the ITP document sets out the process for doing this.  A form for making this notification is supplied in Appendix 1 of the ITP documentation. 

•10.  What is the indicative timetable for the partner selection process?

Milestone	Date
ITP release	21 October 2009
Notices of Intention to Participate close	13 November 2009
Last date for participants to ask questions about the ITP	11 December 2009
Answers to all outstanding participant questions provided	18 December 2009
Closing date for submission of proposals	29 January 2010
Preliminary shortlist of proposals notified	To be determined by CFH
Shortlisted proposals identified and respondents notified	To be determined by CFH
Negotiation of terms of agreements with shortlisted respondents	To be determined by CFH
Final binding offers received from shortlisted respondents	To be determined by CFH
Formal agreements with successful shortlisted respondent(s) completed and signed	To be determined by CFH

•11.  Can I ask questions about the ITP?

Participants may ask questions on any matters relating to this ITP up to 5.00pm Friday 11 December 2009.  Details on how to do this are provided in Section 3.4 of the ITP document.  All questions (and answers) received from participants will be made available to other participants (anonymously) on the ITP website at www.med.govt.nz/ultra-fast-broadband.

•12.  Who will be eligible to submit a partnership proposal?

Any entity or consortium of entities, including local or regional government, iwi, trusts or equity funds will be eligible to submit proposals.

•13.  Will Crown Fibre Holdings accept non-compliant proposals?

Respondents are free to innovate and suggest alterative approaches which deliver better overall outcomes.  However, in order to provide a meaningful comparison, all respondents must also lodge a proposal that is compliant with the ITP requirements.  CFH will be free to consider any alternative proposals but it is not obliged to do so.

•14.  What are the criteria for partner selection?

The ITP documents detail the eligibility and evaluation criteria, which are directed at ensuring the policy objectives are met in the best possible way.  The criteria include:

• Credibility and financial strength of the partner;
• Proposed coverage and roll-out plan;
• Cost of the network build and the price of services;
• Meeting open access and technical requirements;
• Degree of duplication of existing networks;
• Competitive benefits.

•15.  How will Crown Fibre balance national and regional proposals?

The tender process allows for both. It allows for proposals focused on individual candidate regions, proposals focused on any combination or aggregation of candidate regions, and national proposals.

•16.  What if some regions are not ready yet?

It is expected that the CFH will hold future tenders in the event that the agreements arising from this investment round do not fully meet the UFB's coverage objectives. 

•17.  What are the candidate regions? Are proposals limited to these regions?

The list of candidate regions has been expanded to 33 regions based on the most populous urban areas using 2021 population projections.  Proposals can be for all or parts of these candidate regions and may also include other adjacent regions that are not listed where it is economically sensible to do so.  CFH will have the flexibility to negotiate the boundaries of proposed coverage areas with prospective partners, with an overriding mandate of achieving the government's 75 percent coverage target.

•18.  Can a partner lodge a proposal that covers both urban and rural?

The rural broadband initiative is being progressed as a separate initiative.  Prospective partners who have an interest in both initiatives should participate in both processes.

•19.  Does the government have a preferred partner in mind?

No - the process of partner selection will be a transparent competitive process. The government encourages credible candidate providers to participate in the process.

•20.  Are there any issues with Telecom participating in the competitive tender process?

The Government is very supportive of any potential partners who can meet the tender criteria.   We have specifically stated that bids covering a combination of regions, including national bids, will be acceptable.

•21.  Will Telecom have to structurally separate its network business to participate?

Any decisions on company structure would be up to Telecom.  The Government has made it clear that it will only invest money into fibre companies that are not controlled by shareholders who also operate retail telecommunication businesses.  The Government is also clear that potential partners who already own fibre assets can also table options that involve those fibre assets being vended into any new fibre companies.

About Crown Fibre Holdings Limited

•22.  What will be the role of Crown Fibre Holdings?

The core role of CFH will be to operate the contestable partnership selection process and to manage the government's investment in fibre networks.  It will be tasked with:

• assessing responses to the ITP;
• investing the Government's $1.5 billion in fibre companies so as to achieve the Government's 75 percent ultra-fast broadband target as quickly and efficiently as possible;
• appointing board members to government-funded networks;
• monitoring the performance of the government's investment;
• approving technical and operational standards to achieve national consistency across networks.

•23.  What is the timetable for establishment of Crown Fibre Holdings?

An announcement on the formation of Crown Fibre Holdings will be made in the next couple of weeks.

•24.  What is the Ministry of Economic Development's role?

The ITP will be managed by the Ministry of Economic Development until such time as the Crown-owned investment company Crown Fibre Holdings Limited is formed.  MED will provide support and expertise to CFH for a transitional period, until staff to the CFH are appointed.