Infrastructure

Use 5G to boost the regions and bridge the digital divide

Hamish White argues the Government should orchestrate a proper nationwide rollout of an openly-accessible 5G network as a post-Covid 19 project to revitalise provincial areas, reach the digitally excluded and bolster competition.

Some people joke that I’ve become the head of tourism promotion for the Hawkes Bay because I’m always encouraging people to come here to work for (broadband provider) NOW. I talk up how great the lifestyle is if you’ve got a good income and cheaper housing. The extra sun and outdoor lifestyle is a given, along with the shorter commutes and great schools.

Telecommunications engineers can move here and earn significantly more than the average household income because we’re a high productivity technology business with growth ambitions. But NOW could only do that because we’ve built a business from Napier as a retail telecommunications services provider on the back of an opening up of the copper and optic fibre broadband markets through Government regulatory intervention and investment. This would not have been possible in the old days of first a monopoly (Telecom) and then a duopoly in fixed and mobile telecommunications (Telecom and BellSouth/TelstraClear/Vodafone).

New Zealand is much better off than it was a couple of decades ago when one company owned all the phone lines and there were just two mobile networks. It took intervention by the then-Labour-led government to break up Telecom and regulate mobile termination charges and number portability to free up those markets. Then the National-led government under John Key intervened to invest $1.5 billion to roll out the Ultra Fast Broadband network to ensure New Zealand’s broadband speeds and infrastructure improved.

Both interventions worked. The subsequent arrival and intense competition provided by 2Degrees on its Huawei-vendor-financed network helped drive down mobile data and handset prices. That was only possible because of government interventions and has become an apparently ‘natural’ part of the landscape — so embedded that the Reserve Bank has in recent years described the deflationary effect on the economy of lower telecommunications prices as the ‘2 Degrees effect’. Consumers generally, the economy and the government were all winners. Many poorer consumers who wouldn’t otherwise have been able to afford an internet connection were able to connect by their smart phones. Many off the UFB grid could get fixed wireless broadband from Spark, Vodafone and 2 Degrees.

We’ve all found out how valuable those government investments and interventions were in the last six weeks of lockdown. Almost accidentally on purpose, New Zealand’s networks just simply coped when we all went home to work, play and study online on those networks. The cables and cell towers didn’t miss a beat when everyone suddenly started using Zoom, Skype, Microsoft Teams, Slack, Netflix, TVNZ OnDemand and all number of data-hungry gaming services. We saw a 500 percent increase in Teams traffic on the servers we monitor almost overnight.

Anyone wanting to know what could have happened without that UFB and three strong 4G networks need only to look across the Tasman, where Australia’s National Broadband network has been a debacle.

So why not for 5G too?

That’s why it’s such a mystery that the Government and the Commerce Commission seem so reluctant to use the same market-opening and nation-building tools for the just-starting 5G rollout.

5G has the potential to completely ‘rewire’ how large chunks of our economy work, particularly in services such as education, finance, health and government. In these areas we have not seen the same sort of global competition and deflationary forces that have transformed productivity and prices in technology, media and manufacturing.

Just as anyone buying a new home now checks whether there are a few bars of 4G nearby and a fast broadband connection, people will in future want to make sure they have great 5G connections. Suburbs and towns and regions that miss out will become the backwaters of New Zealand, if they aren’t already headed that way as we fall into another recession.

Medical, educational, transport, environmental and agricultural services will become dependent on the sensor-rich and data-heavy ability of 5G networks. Without that 5G infrastructure, those areas risk becoming ghost towns, even for tourists, who will demand those networks. 5G should be thought of in the same way as electricity, clean running water and broadband today. Without it, modern life cannot happen, and certainly not with the sort of high income, high productivity jobs New Zealand needs to thrive post-Covid-19.

Yet that’s where we headed

On the current regulatory trajectory, New Zealand looks like allowing the recreation of a duopoly in 5G with strong networks only in the richest parts of the most population-rich cities such as Auckland, Hamilton, Tauranga, Wellington, Christchurch, Queenstown and Dunedin. That’s because 5G is much more expensive to build than the pervious versions of mobile networks. It requires a much denser patchwork of cabinets and towers to ‘fill in the gaps’ with data-rich ‘beams’ to get data where it’s needed. It will only make economic sense for the two main telcos to build in the big cities. The provinces will be left behind again.

McKinsey estimated in a report in February 2018 that something like 15 to 20 cell sites per square kilometre were needed to make 5G work in highly populated cities, as opposed to two to five sites today. That means the cost of rolling out proper 5G could be six times higher than for 4G and 4.5G.

That means Spark and Vodafone are expected to focus those networks on the big cities, while the smaller cities and towns like Napier, Havelock North, Taupo, Rotorua, Gisborne, Whangarei and Westport could easily miss out. Shamubeel Eaqub once perhaps unkindly called Whanganui and other similar-sized provincial towns as ‘zombie’ towns. Not even the zombies will be able to find work or other services in 5G-less regions.

A duopoly all over again

It’s also unlikely 2 Degrees will be able to quickly provide the sort of robust competition in the 5G world that it has over the last decade in 4G, in part because China’s Huawei has been blocked on security grounds (for now) from building an entire 5G network. Huawei vendor-financed 2 Degrees’ 4G network, helping it to accelerate its rollout and compete hard against Spark and Vodafone with the latest kit.

The Commerce Commission does not appear in a mood to intervene again, saying last year it did not need to do more to encourage competition in the 4G world. The trouble is it’s driving policy by looking through the rear-vision mirror, and telecommunications in a 5G world is a very fast moving vehicle. It should have looked out the front window at its ‘heads up’ display to see the fast-approaching duopoly.

The Government and Telecommunications Minister Kris Faafoi have also been strangely quiet. There is a major post-Covid 19 opportunity for the Government to use its regulatory power and its balance sheet to lay down a piece of national infrastructure that could infuse many regions and towns and cities with technology-led growth that produces high wage jobs like the ones NOW’s engineers around the Hawkes Bay enjoy.

Without a Government-sponsored rollout of 5G, these regions would miss out. The Government could ensure the network was built and created as a regulated wholesale platform owned by infrastructure-hungry pension funds such as the NZ Super Fund and ACC, who are happy with a solid but low and regulated return. That would allow a thousand flowers to bloom on top of that infrastructure, offering a range of services for all manner of industries and communities right around the nation. In the Hawkes Bay, for example, there is enormous opportunity for rich 5G networks to help horticulturalist and other farmers better manage their soils, water and crops, not to mention pick and pack them with more automated self-directed equipment.

Make sure the excluded are included this time

There is another reason for the Government to ensure any 5G network is widely available and easy to access. It knows it must improve wellbeing across all those communities who have struggled in the last 30 years since our last Great Recession in the early 1990s. Many remain in the provinces and were hardest-hit during the last economic transformation from 1985 to 1995 when many manufacturing jobs were lost.

One of the drawbacks of the UFB rollout is that the costs of connecting the ‘last mile’ of fibre to the home is particularly high in those communities where the costs and credit risks involved of connecting every household with fibre are prohibitively high. That means suburbs such as Flaxmere and Maraenui in the Hawkes Bay have relatively low broadband penetration rates and it doesn’t make financial sense for companies such as NOW to service them.

Yet, we all discovered during the lockdown that more than 20 percent of households, often with the most vulnerable children, did not have the connections or devices to learn remotely. They were effectively excluded from the UFB network and all the benefits of new services most New Zealanders could access.

The beauty of 5G is that it does not need a digger or permission to dig a hole or the need to ‘hook up’ the connection inside the home. Why wouldn’t a national rollout of 5G include the specification that every community be covered by 5G? And that communities that need to be connected can be with devices provided by schools and other community services organisations. A nationwide and easily accessible 5G network would allow that quickly and at scale.

Now is the time to use this Covid-19 crisis to give a massive shot in the arm to the regions and to include many of our digitally excluded communities right up and down our long, skinny islands, and not just to the richest pockets of people in the big cities, and from only two companies.

Let’s make the 5G rollout a Covid-19 reconstruction project we can all get behind to lift New Zealand’s productivity, incomes and wellbeing, rather than let another long recession without infrastructure building drive already struggling communities even further behind the richest and most connected groups in the biggest cities.

The last thing we want is a repeat of that early 1990s recession, that was so painful for the regions and hundreds of thousands who missed out in the recovery of the late 1990s and 2000s.

Bernard Hickey spoke with Hamish and tech entrepreneur Rod Drury about the idea this week in this Zoom video. Drury wrote an Op-Ed for Newsroom earlier last month which also talked about the idea

*Hamish White is the founder and CEO of Napier-based NOW, an RSP for households and businesses throughout New Zealand. It has a call centre in the Hawkes Bay with 50 staff.

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