'THE NATION'

STEVEN JOYCE
Interviewed by DUNCAN GARNER

Duncan Ultra-fast Broadband, the government says it's critical if we're to compete in the 21st century. To that end the government announced in the Budget that almost a billion dollars will go to Telecom, which has just won the lion share of the government's Broadband contracts. Telco will now split from its network arm Chorus which will lay fibre internet cables in 20 more cities and towns across the country. Telecom shares which have taken a beating over the past year soared to a 16th month high this week on the news, before slipping back thanks to threatened legal action over separate competition issues. But while Fund Managers are happy to see the share price head upwards, there are questions about why so much government money is being poured into Telecom. With me now is Minister of Communications and IT, Steven Joyce, good morning.

Paint me a picture what does this ultra-fast Broadband do for New Zealanders in ten years; time, what are they doing in their homes in ten years' time?

Steven Joyce – Communications Minister
Oh it'll be fantastic. I mean just take in a number of areas, Education for example. Kids in remote places able to do French lessons with French specialist teachers from the other side of the world, or visit the Smithsonian or the Louvre without actually leaving their school. In the Health area the potential, and I think this will very definitely happen. We have somebody who needs a diagnosis of say perhaps some form of headaches and things in Gore, and they get a scan done and they get sent to the specialist whether they're in Auckland or Melbourne, depending on how unique their case is, without actually having to leave because they can manipulate these scans and do all the views of it right across anywhere in the world in face.

Duncan So completely transformational in terms of people not leaving their homes?

Steven Well it is, and in terms of that the potential to properly teleconference, I mean it's sort of all there now, but we're talking high definition, two way video, all the stuff in the cloud and working properly, and as we all know there's limitations on that today because of the equipment that people have. But when most of it's actually being run through the network you'll find it's immensely more possible and a lot of people will actually commute from home, work from home, and only go to the office when they’ve gotta have face to face meetings with visitors.

Duncan Let's get down to some of the nuts and bolts of this thing, you’ve come out this week and said wholesale costs at about $37.50 which is a wholesale cost to the household. It'll be more than that retail though?

Steven It'll be more than that retail, but that’s equivalent wholesale prices to what we have today at massively faster speeds and more reliable information rates. A minimum information rate being transferred will be about 60 times what we've currently got today with copper based Broadband, so this is magnificently different.

Duncan And you’ve also said no connection fees.

Steven That’s right.

Duncan Now there was talk a year ago that it could be up to $2000, now I know that hasn’t come to fruition, but how are they going to get their money back on this?

Steven Well it basically comes down to a very – well they’ll get it back over a long period of time, and also because the government has put some money in. Effectively the government is taking a discount on that money for a period from the four players that we're working with. You’ve mentioned Chorus, but also Enable, North Power, World Networks, they will use that government money to accept a lower and much longer rate of return than they normally would for an investment like this.

Duncan Why can't I find, and I've been looking all week for a cost benefit analysis, you’ve put more than a billion dollars into this, you’ve got to know what it's gonna do for the economy, why hasn’t Treasury done something?

Steven Well there were some early analyses done by a number of players before the policy was taken up by us prior to the last election. It's all a little bit subjective and has to be because you have to make some predictions on what the world is like …

Duncan But why haven’t you done something, it's more than a billion dollars, I mean you would on any other government spend?

Steven No, we have, as I say it was largely done before. The New Zealand Institute did a fair bit of work, others have done work. The Australians have done work, but I mean you could go and do another one if you wanted to make yourself feel better, but the reality is the countries we're competing with are doing this stuff. So Korea have done it, Singapore are doing it, Japan are doing it, Australia is doing it, a much more expensive way than we're doing it has to be said.

Duncan What's the impact on the economy? You’ve said up to four billion dollars. You’ve quoted independent experts.

Steven That’s right, which is the New Zealand Institute.

Duncan Okay where do you find that four billion dollars?

Steven Well it really comes out of productivity benefits, in terms of this ability to get more things done in the place that you're at now versus having to travel somewhere to do that. So whether that’s in work, education, health, government IT.

Duncan So you don’t build any more roads?

Steven Well hopefully. If I was wearing another hat that would be fantastic, and I actually think it will take the top of transport demand about 10 or 12 years from now.

Duncan So if you're talking about up to 1.8% of GDP, which I think is quoted in one of your speeches I looked at this week, we're possibly talking 70,000 new jobs over time, cos that’s what the figures would relate to?

Steven That’s right, it's very significant improvements in productivity.

Duncan Really? Where are those jobs?

Steven Well look they come right across the economy, and the point of this is it is right across the economy. Every aspect of life will be affected by this. I'll give you another example.

Duncan I just want to quickly go back to the GDP figure, the impact on GDP. Where did that figure come from?

Steven A number of analyses done by MED but also relying on some of the international analyses.

Duncan Seems like pie in the sky, someone's just grabbed 70,000 jobs?

Steven But intuitively it makes absolute sense, you just think about it. Say for example livestock improvement, I mean that’s a very big thing for New Zealand. Those guys came and saw me two or three weeks ago and said wow we've got a problem here.

Duncan Has Treasury told you it has this impact on GDP?

Steven No Treasury have not told us that, the analysis of that has been driven by MED and bringing together international stuff.

Duncan What have they told you? What has Treasury said the economic impact is to you?

Steven Oh well Treasury of course is cynical about lots of things, so actually they're very happy with the outcome of this. They actually think the government has got a very good deal. But I think if you actually said to Treasury would you come up with this policy at the front, they'd say no no no wait until we prove later on down the line that one day it might be useful, and we've taken an express decision to try and get out ahead of the pack and get ahead with competing countries and get this stuff done, and I think it will be absolutely transformational for this country.

Duncan How does it have an impact on the economy? Because at the moment in talking to a few of these experts out there, I mean the huge downloads at the moment at You Tube, porn, faster porn if you like. How's that gonna have an impact on the economy?

Steven Well you can't – I mean at the end of the day it's gonna speed up every aspect of digital life, but the real killer raps at this stage, and there's lots we haven’t thought of, but the really killer raps at this stage will be the high definition two way video, which really make all those things that we talk about in terms of telecommuting and things, much much easier than it is currently doing.

Duncan But you can't sit here today and say this will mean 50,000 jobs and 2% growth because…

Steven No you can't say exactly that, you can make estimates based on the international experience to date. The Koreans, I sat with a Korean, head of their Federal Communications Commission in Hobart a couple of months ago at the Cannes Summit, and he said something very interesting to me. I said well have you done all these studies? And he said yes, and they're providing them to us, because they’ve now done their network and it's a 100 megabits per second everywhere and it's going very well. I said to him, why did you do it, I said did you have all these studies before you started? And he said you know what we didn’t, he said but actually we come from a country where in the 1950s we were completely destitute and we started with transport, and we've gone to communications and that has transformed our country to one of the wealthiest emerging countries in the world, which is true, wealthier than New Zealand. And it's that approach, that leading approach to infrastructure that has that potential …

Duncan And you’ve picked the big winner this week. I mean Steven Joyce as Minister has picked the big winner and that is Telecom. Let me tell you what Alan Freeth …

Steven Well Alan Freeth will be an interesting one because Alan's against the thing all the way through.

Duncan He says your investment this week re-establishes Telecom's monopoly with government money and government protection. Is it sour grapes?

Steven That’s just rubbish and it is sour grapes, and Alan has been against this thing from the beginning. He's had every opportunity to bid, Telstra didn’t even bid, so they’ve been trying to knock it over since the word go. They had every opportunity.

Duncan But why Telecom? Why I say why Telecom, cos couldn’t the power lines companies in Auckland have delivered this quicker, faster than Telecom?

Steven Well here's the deal. The Ministers didn’t select it. It was selected by an independent company that we set up to come up with the best deal from a competitive bidding process. The recommendation to Ministers was very clear, there was not ambiguity about it, that the deal should be done with those four companies that we're working with, and Chorus should pick up about 70%. They did not say to us that you know you could go either way. I thought it could go either way, cos I think you can make a case that the lines companies could have done it in a different way, but when it came to the crunch, when they'd analysed everybody's bid they said no this is the way to do it. And I think it's pretty exciting because you have to look at it in terms of the way it stacked up, and the three things you want to test yourself on is firstly what the cost is to the consumer. Well we can all agree that the cost to the consumer is gonna be excellent and much more competitive than people said. The build cost – well the build cost is the lowest that anybody's been able to find in the western world. And thirdly, what's the cost to the taxpayer? Well the cost to the taxpayer, even though it's 1.3 billion dollars, is actually lower than just about anywhere else. The Australians are doing the same thing and are spending well over 30 billion dollars Australian, because they sat down with Telstra and did a deal where they can nationalise Telstra's copper network. We have not done that in this country.

Duncan Was Telecom too big to fail? It was too big to fail and was this a way of getting that separation done and dusted once and for all.

Steven Well I think it's good that separation is occurring. I think it's a side benefit of the project, but no look we just…

Duncan It's a major benefit isn't it?

Steven It is a very significant benefit, and to suggest that it goes back to the old monopoly days says that Alan's just not on the right planet, because actually Chorus is gonna be a separate infrastructure company which is going to because actually supplying to all the retailers and will have no interest in supplying to Telecom retail in any way differently to Telstra Clear, and that’s always been the problem with the integrated model. But just going back, look I'm sure if you asked Telecom they'd rue the day that I became the Minister because actually they're no fans of this process.

Duncan They’ll be celebrating you this week though won’t they, we see their share price rocket this week, what did we say 16 month high, you’ve saved them, you’ve saved them.

Steven Yeah but after we actually caused them a lot of problems, because once this policy was announced they were about $3.50 a share and they’ve gone all the way down to below $2.00 and this week they’ve recovered a bit. But if you look all the way through the market has I think rightly seen this is a very big risk for that company.

Duncan But now they have a pathway forward over the next 10 years.

Steven The country has a pathway, and that’s what's exciting about it.

Duncan And do you expect fierce competition on that network?

Steven Absolutely. And despite whatever Alan says that Telstra will be right there with bells on competing with Vodaphone, competing with Telecom Retail, competing with all the other ISPs to get this to New Zealanders as fast as they can because they stand to get the retail benefit out of it, and Chorus will be a separate listed company on the New Zealand Stock Exchange with no …

Duncan The exchange will be also loving you this week because you’ve effectively pumped money you know and recapitalised most of the Nike ….

Steven No we haven’t recapitalised it at all. What we have done is taken away a regulatory risk that we created when we started this process, and we actually realised up front that actually we've caused a lot of uncertainty in the market. But coming out of this New Zealand will have telecommunications that is equal to anywhere in the world and will be the best right across the world.

Duncan I just want to finish on this group you’ve set up Nga Pu Waia, which is this Maori Broadband group. What on earth is that?

Steven Well actually that’s because we want to make sure that every sector of the community gets benefit out of it…

Duncan But they get it from rural Broadband anyway, so why this?

Steven Well we have a whole range of groups that we're working with, for example NZICT, they're the vendors of all the software. We're working with the Education sector obviously. We're working with the Health sector.

Duncan It's a bit of a coalition number with the Maori Party wasn't it?

Steven No Pita Sharples is very keen on this for Maori economic development. He is the Minister in charge of a ministry.

Duncan So Maori don’t miss out?

Steven Absolutely. That’s very important. Every sector of the community has gotta be able to leverage this to benefit themselves in terms of economic development, and this is just another group that helps us do that.

Duncan Alright, Steven Joyce thank you for joining us in the studio today.

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