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Should the NZ Govt. Fund Broadband for Everyone?

PRESS RELEASE November 14, 2001

Should the New Zealand Government Fund Broadband for Everyone?

SouthNET comments on the "Blazing a Trail to the Information Technology Highway" report

The "Blazing a Trail to the Information Technology Highway" report received coverage in Infotech's November 13, 2001 article.

http://www.stuff.co.nz/inl/index/0,1008,1004351a1896,FF.html

Southland study - telco pricing fears 12 November 2001

By RICHARD BRADDELL Broadband telcos making ad hoc entries into rural markets could push up prices for hard-to-reach customers and even deny them service altogether, an Industry New Zealand funded report says.

===============

The "Blazing a Trail" report and the Infotech article made a number of references to SouthNET, so we thought it appropriate to comment.

The Infotech article did an excellent job summarizing the relevant key topics of the 70-page "Blazing a Trail" report and their current relevance in light of the specific regional industry developments, e.g., Telecom has been subsidized by the Otago Community Trust for rural Jetstream and SouthNET has received financial backing from Invest South for investment in infrastructure for the introduction of broadband wireless wi-fi high-speed Internet services.

The "Blazing a Trail" report calls for government subsidized provision of high-speed Internet services for all New Zealanders, referring to it as "ubiquitous broadband."

In the best of all possible, perfect worlds, it would be wonderful if every New Zealander person, business and school had access to high-speed Internet and data and communications services.

In the real world, "ubiquitous broadband" looks improbable in the short-to-medium term. In the real world, the important question is: who is going to pay for "ubiquitous broadband"?

Clear (which reportedly made losses for quite some time) is now rumoured to be purchased by Telstra (NZ), whose strategy may not be going to its original plan (it has been reported that Telstra is scaling back roll-out of high-speed networks in CHCH and that Austar, one if its corporate parents in Australia, is making significant losses). Several weeks ago the press reported that Telecom was not making profits on its Jetstream service nationally and on November 12, we read that Walkerwireless was reducing staff by up to one-third.

Globally, telco share prices are 50% + off their highs and many are now trying to figure out how and why they paid billions of dollars for 3G spectrum, which does not now look as though it will generate sufficient revenues to justify the purchase prices. Telcos are no longer floating in oceans of disposable investment funds raised on share markets in the grip of "irrational exuberance." Very few Internet Service Providers in the world trade profitably. Having spent the funds they raised on the "irrationally exuberant" stock market, a number of these firms have filed for bankruptcy. The halcyon days are gone.

In a nutshell, in our opinion, it looks improbable that any New Zealand or international telco will be able to justify "building ubiquitous ' whole of community' rural broadband networks", as it is referred to on page 65 of the "Blazing a Trail" report. This morning we read that yesterday Telecom NZ announced that is cutting capital expenditure from $ NZ 1.1 billion to $ NZ 900 million and is reducing capital spending in most areas.

As a small, privately owned, operated and funded Southland-based Internet Services Provider business, we are watching with interest to see if the NZ Government and local government are planning to implement

"a strategy to provide affordable high speed communication .... to all consumers.....through Government, telco and community investment partnerships."

As indicated by our in-depth research into the industries in NZ and overseas and confirmed by some of the information included in the "Blazing a Trail" report, we believe that provision of such high-speed Internet services to all consumers in New Zealand in the short-to-medium term is improbable to occur without massive NZ Government subsidies. We have also formed the view that the NZ Government is not now in a financial position to subsidize national "ubiquitous broadband."

It is our opinion that massive NZ Government subsidies for investment in IT infrastructure will not be as highly rated as some other critically urgent government funding priorities: e.g., bailing out the national flag carrier Air New Zealand and funding the critically challenged health and educational systems. We view the latter two, health and education, as primary societal funding priorities. We do not view provision of high-speed Internet services as a top societal funding priority.

As Internet Service providers and business people, we firmly believe that superior Internet and communications services are a crucial factor in trade, commerce and education; had we not believed this, we would not have created SouthNET nearly six years ago, before Telecom or Clear even had retail Internet services businesses.

However, as tax-payers, citizens and individuals, we believe there are infinitely more pressing priorities and challenges confronting NZ government, local government and New Zealanders in general than guaranteed "ubiquitous broadband".

An example of a high priority government challenge can be found close to home: Southland is now suffering from a dire shortage of medical professionals, doctors and medical registrars. From what we have read, the shortage of rural doctors in Winton is not a unique situation for rural New Zealand. It is frightening to imagine a rural community, with a population of several thousand people, without adequate local medical services and expertise. Rural medical services are a top priority; "ubiquitous broadband" is not.

Because we believed it improbable that the NZ Government would launch a nation-wide "ubiquitous broadband" programme with such critical challenges still unresolved, earlier this year SouthNET decided not to wait for government initiatives (the "Blazing a Trail" report) before launching SouthNET's new high-speed broadband Wi-Fi wireless Internet and data services. SouthNET's Wi-Fi is now operational in Invercargill and being initiated in a number of rural locations in Southland and Otago.

The "Blazing a Trail" report ends with the following sentence:

"A partial attempt to provide service by a network provider, or take-up of data users on a sectorial or narrow geographic area rather than a "whole of community" basis is predicted to overall cause very much more harm that good."

We disagree with this subjective prediction and conclusion and have already acted accordingly, by initiating high-speed broadband wireless Wi-Fi technologies and services. In the absence of a "best-of-all-possible-perfect-world solution", which we perceive as being highly improbable if not impossible, we have embarked on our constructive Southland Broadband Demand Aggregation Plan.

SouthNET formally invited the Southland District Council - Venture Southland to participate in SouthNET's "Southland - Otago Broadband Demand Aggregation Plan", as detailed in the August 15, 2001 10-page document with cover letter, sent to Southland Mayor Frana Cardno and Southland District Council CEO Mike Ross.

Mike Ross faxed back on August 21, 2001, referring to the Otago Southland Broadband Committee commissioned survey and

"suggested that any strategy for the roll out of any new technology in this area await the outcome of the report."

SouthNET provided a detailed response to Mike Ross on August 22, 2001 and concluded with:

"In summary, we look forward to reading the $100,000 Otago Southland Broadband Committee report when it is made available.

We also look forward to discussing the participation of the Southland District Council in our www.always-on.net.nz Southland-wide Internet demand aggregation solution when it suits the SDC Board's itinerary."

The world has changed significantly since the Otago - Southland Broadband Committee report was initially commissioned and its scope and parameters defined. The world has changed even more dramatically since the September 11 Horror (S11H), affecting nearly every industry in every country in the world.

When one now factors into the broadband equation the state of the NZ and global share markets, the weakness of telecommunications companies' balance sheets and the global recessionary trends that began to manifest themselves pre-September 11 Horror (pre-S11H) and have intensified disproportionately post-S11H, we hold the view that the research contained in the September 2001 "Blazing a Trail" report resolutely supports the conclusion that it is not economically viable to provide "ubiquitous broadband" New Zealand-wide without massive NZ Government subsidies.

We firmly believe in the merits of private enterprise, free-markets and individual initiative and look forward to rolling out SouthNET's high-speed broadband Wi-Fi wireless Internet and data services where economically viable (detailed information is available at www.wi-fi.net.nz).

Our businesses have a long history of working closely with non-profit, educational and government bodies in a variety of projects. Public sector organization participation in certain projects can result in increased economies of scale, increased scope and depth and increased effectiveness of certain private enterprise initiatives.

Now that the Otago - Southland Broadband Committee "Blazing a Trail to the Information Technology Highway" report is finished and available to the public, SouthNET looks forward to hearing from the Southland District Council and Venture Southland concerning their participation in the Southland Demand Aggregation Plan, a dialogue initiated with them by SouthNET in August 2001.

We will be interested to learn if the Southland District Council and Venture Southland (a joint venture between Invercargill, Southland and Gore councils) will be participating in the SouthNET Southland Broadband Demand Aggregation Plan, an IT infrastructural project financed by Southland-Otago investment company Invest South Ltd. and South Net Ltd., or if the Southland District Council and Venture Southland intend to promote

"ubiquitous broadband", "a strategy to provide affordable high speed communication .... to all consumers",

subsidized by NZ Government, tax-payer and rate-payer funds, a strategy which may not be feasible until NZ Government coffers are full and telecommunications companies balance sheets grow healthier.

For additional information:

Marc Cohen Managing Director South Net Ltd. is a 100% Southland, New Zealand Owned & Operated Business South Net Ltd. is proud to be Internet Advisor and Supplier to the NZPolice National HQ Limehills Post Office , Centre Bush, Southland 9660 New Zealand

E-mail:marc@southnet.co.nz Marc Direct: (64) 025-345-222

http://www.southnet.co.nz Fax: (64) 03-236-0909

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