Part 1: Introduction

1.1
In this Part, we describe:

• what is being "rolled out" and how it originated;
• the parties in the roll-out of a fibre-optic network;
• the scale and time frame of the roll-out;
• the current state of the roll-out;
• what we looked at and what we did not; and
• the structure of this report.

What is being "rolled out"?

1.2
In 2009, the Government committed to giving most New Zealanders better access to broadband services. It launched a telecommunications infrastructure project known as "the ultra-fast broadband initiative" (the UFB Initiative).

1.3
The UFB Initiative would improve access to broadband with better speed, reliability, and bandwidth.¹ The Government's objective for the UFB Initiative was:

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 greenfield developments and certain tranches of residential areas.²

1.4
The Government set six guiding principles³ for implementing the UFB Initiative. The UFB Initiative should:

• make a significant contribution to economic growth;
• neither discourage nor substitute for private sector investment;
• avoid entrenching the position, or "lining the pockets", of existing broadband network providers;
• avoid excessive infrastructure duplication;
• focus on building new infrastructure, rather than on preserving existing "legacy assets"; and
• ensure that broadband services are affordable.

Building a fibre-optic cable network

1.5
The Government decided that a street-based fibre-optic network would be built. This would include connecting individual end-users (for example, households and businesses) directly with fibre, generally known as Fibre To The Premise or "FTTP". Building a street-based fibre-optic network would involve laying fibre-optic cables underground and overhead along the streets of larger towns and cities. This network would be connected to the existing cross-country fibre network between these centres.

1.6
The first phase, which aims to make ultra-fast broadband available to 75% of the population, is called UFB1. There is a more recently announced initiative to increase the coverage to 80% and to make ultra-fast broadband available in smaller towns.

1.7
The Government committed $1.345 billion to the roll-out of UFB1. It expected private-sector investment to at least match this amount in a "co-investment" arrangement. The Government's commitment takes the form of funding that is released progressively as the roll-out work continues. This funding is eventually repayable to the Crown by commercial partners or realisable by Crown Fibre Holdings Limited (Crown Fibre) selling securities. Full ownership of the network will eventually be transferred to these commercial partners.

1.8
The Government required the network to be designed to support open access. This means that new and existing telecommunications service providers will have unobstructed access to the completed network.

Who is involved in rolling out the fibre-optic network?

Crown Fibre Holdings Limited – finding commercial partners and managing commercial arrangements

1.9
The Government considered that the up-front cost of building a fibre-optic network would be too high for the telecommunications industry alone to fund. Crown Fibre was set up as a new Crown-owned investment company to manage the Government's investment in the network. Crown Fibre started operating in late 2009.

1.10
The shareholders of Crown Fibre are the Minister of Finance and the Minister for State-Owned Enterprises. The Policy Minister for the UFB Initiative is the Minister for Communications.

1.11
At a high level, Crown Fibre has two parts to its role:⁴

• to operate a contestable process to select commercial partners; and
• to manage the Government's investment in fibre networks.

1.12
Crown Fibre's role was broken down into the following tasks:

• assess responses to the tender documents against criteria set by the Government;
• negotiate commercial arrangements with commercial partners to co-invest in "local fibre companies" and appoint board members to these companies;
• monitor the performance of, and manage the Government's investment in, local fibre companies;
• approve technical and operational standards for national consistency; and
• co-ordinate deployments, liaise with local government, and do what is necessary to ensure that the Government achieves the best possible outcomes from its investments.

1.13
As at 30 June 2015, Crown Fibre had 17 full-time equivalent staff, including a senior management team of six. It has a board of six (including the chairperson), which includes people with a strong mix of telecommunications, infrastructure project, and commercial experience. Crown Fibre also has other contractors that test the parts of the network that have been completed.

Connecting the network to homes and businesses

1.14
When a user opts for ultra-fast broadband, their home or business premise has to be connected to the network in their street. Connecting homes and businesses to the network is critical to achieving the project's intended social and economic benefits. Although this is outside of its core activities, Crown Fibre has a limited role in encouraging the demand for ultra-fast broadband, which we discuss in Part 5.

The commercial partners – contracted to build the network and eventually own it

1.15
The commercial partners that Crown Fibre has contracted with to build the network are:

• Chorus Limited (Chorus) – to build 69.4% of the UFB1 geographical coverage;
• Enable Services Limited (Enable), owned by Christchurch City Holdings Limited – to build 15.3% coverage;
• Ultrafast Fibre Limited (Ultrafast Fibre), owned by WEL Networks – to build 13.7% coverage; and
• Northpower Fibre Limited (Northpower), owned by Northpower Trust – to build 1.6% coverage.

1.16
Crown Fibre co-invests and shares ownership in the network with Enable, Ultrafast Fibre, and Northpower through special-purpose companies, called local fibre companies. Crown Fibre distributes funding through these companies. The Government's investment effectively takes the form of concessionary funding, eventually to be returned to the Government, with the network owned by the commercial partners.

1.17
Crown Fibre has a different financial arrangement with Chorus. Crown Fibre pays Chorus directly for work done to fulfil the terms of its contract. This approach is more like a traditional "principal and contractor" arrangement.

Scale and time frame of the roll-out

1.18
UFB1 is a 10-year project. Crown Fibre started preparing for the roll-out in 2009. The roll-out started in late 2010 and is expected to be fully completed by December 2019.

1.19
The commercial partners each have different schedules that reflect the scale of the work they are responsible for (see Figure 1). Each commercial partner's roll-out scale is measured by residential population based on 2023 population estimates (not residential premises that the network has to be laid past) and the numbers of businesses, public hospitals, and schools that will be able to connect to the network (we refer to this as the network "passing" premises).

Figure 1
Scale of work involved in UFB1

Note: Figures are supplied by Crown Fibre and are sourced from the UFB Agreed Premises Dataset (shared with the commercial partners), Network Deployment Plans (agreed with commercial partners), and 2023 population estimates from Statistics New Zealand.

1.20
Figure 2 shows the geographic spread of each commercial partner's work. The local fibre companies work in their regions, while Chorus works throughout the country.

Figure 2
Geographic spread of the commercial partners' work

Source: Crown Fibre Holdings Limited.

Current state of the roll-out

1.21
The roll-out is now well advanced. All commercial partners are meeting or exceeding currently agreed time frames. (We discuss standards of quality, and how Crown Fibre assures them, in Part 3). The current progress of the roll-out is ahead of schedule overall. Figure 3 compares actual performance against the planned performance.

Figure 3
Cumulative number of households and businesses able to connect to ultra-fast broadband, July 2011 to June 2015

Source: Crown Fibre Holdings Limited.

1.22
As at the end of March 2016, the total number of end-users able to connect to ultra-fast broadband had increased to 921,625.

1.23
Crown Fibre advised us that, as at 31 March 2016, throughout the whole roll-out:

• all schools in coverage areas have been passed with ultra-fast broadband fibre;
• all public hospitals in coverage areas have been passed; and
• about 97% of businesses in coverage areas have been passed.

What we looked at

1.24
We looked at how well Crown Fibre has managed the performance of the commercial partners in building the network. Our objective was to assure Parliament and the public about how well Crown Fibre prepared for and met this responsibility.

1.25
We also sought to learn lessons that other parts of the public sector could apply when using the skills, experience, and reach of commercial partners.

1.26
Specifically, we looked at Crown Fibre's contracting, performance management, and collaboration with the commercial partners during UFB1. We asked the commercial partners how well they considered Crown Fibre has performed.

1.27
We looked at how effectively the structures in place for partnerships supported Crown Fibre and the commercial partners in doing business together.

1.28
We reviewed more than 200 documents about Crown Fibre and the roll-out. These documents included publicly available information (such as Crown Fibre's annual reports and information on various websites) and documents provided by Crown Fibre.

1.29
We interviewed 38 people to get their views about Crown Fibre's performance. Some worked for Crown Fibre at various levels, and others were employed by the commercial partners. We also sought the views of Crown Fibre's monitoring agencies (the Ministry of Business, Innovation and Employment and the Treasury) and of "priority users" – people representing schools, the health sector, and businesses.

What we did not look at

1.30
We did not review in depth all the procurement and contractual aspects of the network, nor all of the contract documentation between the parties.

1.31
We did not review all aspects of public-private partnership models (either existing or newly designed).

1.32
We did not look at technical aspects of the network, the standards set for building the network, or any other broadband-related initiatives (such as further ultra-fast broadband extensions or work in rural areas).

1.33
We did not look at Crown Fibre's role in managing the Government's investment. For example, we did not assess the overall investment and repayment strategies or the cash flow methods adopted.

1.34
We did not look at the financial performance of Crown Fibre or the commercial partners, the financial structures between them, or the asset ownership strategies.

1.35
The process of connecting the network to residential homes was not part of our work because it is an arrangement people make with the business that provides their internet services. This is not within Crown Fibre's control, but it does monitor the timeliness of these connections and provides that information to Ministers (see Part 5).

1.36
We did not seek the views of the public (because people's internet connection arrangements are with their internet service providers, not with Crown Fibre), but we did speak to a local authority to understand some of the experiences and effects of the building work.

Structure of this report

1.37
In Part 2, we discuss how Crown Fibre prepared for the roll-out and tendered for, and negotiated contracts with, commercial partners.

1.38
In Part 3, we discuss how Crown Fibre has overseen the performance of its commercial partners.

1.39
In Part 4, we discuss and evaluate the working relationships between Crown Fibre and its commercial partners, and between the commercial partners.

1.40
In Part 5, we discuss Crown Fibre's role in people's uptake of the ultra-fast broadband available in their streets.

1: For the purposes of the UFB Initiative, ultra-fast broadband means broadband services at a minimum speed of 100Mbps downstream (from the internet to the user) and a minimum of 50Mbps upstream (from the user to the internet).

2: Ministry of Economic Development (2009), New Zealand Government Ultra-Fast broadband initiative – Overview of Initiative, Wellington, page 1.

3: Ministry of Economic Development (2009), New Zealand Government Ultra-Fast broadband initiative – Overview of Initiative, Wellington, page 1.

4: Ministry of Economic Development (2009), New Zealand Government Ultra-Fast broadband initiative – Overview of Initiative, Wellington, page 1.