Why the NBN could be a white elephant

Consumers say no thanks to fibre

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The strategy of “if you build it, they will come”, appears to have backfired in both New Zealand and Australia.

New Zealand’s national broadband rollout appears to be hitting the same issues as Australia’s own NBN. Consumers don’t appear interested in taking up subscriptions, with just 200 premises connected to the Ultrafast broadband fibre (UFB) network, according to Chorus Limited’s (ASX: CNU) CEO, Mark Ratcliffe. That’s despite fibre being rolled past more than 42,000 homes by the end of June 2012. In Australia, NBN Co had planned to roll out fibre to 566,000 homes by June 2013, but has since changed that to just 92,000, and of those, just over half will be connected by fibre.

Chorus was split off from Telecom Corporation of New Zealand (ASX: TEL) in November 2011, with Chorus effectively holding the wholesale assets, while Telecom became a retail business with a mobile network. Chorus won the rights to roll out 80% of the UFB.

The problem for Chorus appears to be that the three major ISPs, which hold 75% of the market, have yet to offer consumer plans on the UFB. The largest player, Telecom is expected to launch plans in early 2013. Meanwhile, Telecom, Vodafone and 2degrees are upgrading their mobile 4G networks to provide faster speeds and more bandwidth. Mr Ratcliffe has said that mobile data will never be a cost-effective competitor to land based communications.

Telstra Corporation (ASX: TLS) is also rolling out and upgrading its 4G network in Australia, and plans to cover two thirds of Australia’s population over the next ten months, according to a report in today’s Australian Financial Review. That could put a serious dent in the uptake of NBN subscriptions, as 4G is up to five times faster than its predecessor is, and faster than some ADSL copper connections.

Optus – owned by Singapore Telecommunications (ASX: SGT) activated its 4G network in July 2012, offering coverage in Sydney and Perth metro areas, with more regions to come.

The Foolish bottom line

With new technologies likely to boost speeds and bandwidth even higher in future years, 4G or its successor could give the NBN in Australia and the UFB in New Zealand a run for their money.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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