Rural Towers: Subsidies, Profit Motive, & Service to Rural New Zealand

From the advent of commercial radio it was recognized that rural radio and wireless communications were important to the development of the New Zealand. By the mid 1930s the government was already providing direct subsidies to broadcast radio operators in rural areas around the country in order to ensure universal coverage. The small number of commercial radio sites was expanded during a time of government administration of broadcasting from the mid 1930s through the early 1960s. The New Zealand Post Office increased again the amount of rural sites when it established mobile radio services in the late 1940s. Through the 1980s, rural radio broadcast and telecommunications sites enjoyed continued improvement and maintenance, to the benefit of rural areas that would not be economic to service otherwise.

With the split of telecommunications from the Post Office portfolio, and its sale to Telecom New Zealand, rural telecommunications towers came in to private ownership. Similarly with the corporatization of Broadcast Communications Limited (now known as Kordia) rural broadcast towers fell to management under a company required to turn a profit. These corporatization efforts have resulted in a low level of continued investment in rural towers, for a number of reasons.

A telecommunications provider wishing maintain or expand service to the least populated areas of New Zealand will be faced with both the high capital expenditure associated with building towers to serve few users, and operational expenses that on a per-subscriber basis are higher than those for towers serving more subscribers. Rural towers have drawbacks that include:

  • Location further away from main centers, technicians, supplies, fuel, and emergency services
    • In areas where a sole tower may supply all local terrestrial communications
    • At the end of farm tracks which can range to tens of kilometers and may not support heavy vehicles
    • On the tops of hills and mountains with high exposure to wind, dust, rain, and ice
  • Frequent power supply issues, being at the end of isolated branches of electricity lines companies
  • The requirement for higher power services than urban towers, due to coverage areas orders of magnitude larger
    • Requirements for larger battery banks, generators, and fuel tanks to support higher power use and frequent supply issues
  • Location on particular sites due to coverage requirements, at the mercy of land owners with regards to lease costs
  • Infrastructure that is dfficult to change or relocate to do the Resource Management Act and its interpretation by local councils

With profit-motivated ownership of rural towers comes the impetuous not only to recover as much revenue as possible from these towers, but to ensure against the erosion of small (and indeed shrinking) rural markets. A profit motivated broadcaster of incumbent services must resist a broadcaster of competitive services moving on to their infrastructure in order to preserve its economic livelihood, just as a profit motivated incumbent cellular company must resist a competitive cellular company wanting to expand. Telecom’s profit motive has never been questioned, but it’s important to note the philosophy of State Owned Enterprise Kordia. In the words of its CEO Geoff Hunt: “Kordia’s job is “to provide services and make money. It is not a social service.”

As a result of this profit motive, alternative providers seeking to move in to rural markets have been turned down at every opportunity. Here are actual examples of responses to co-location requests for space on rural towers – infrastructure built with government subsidies but now operated by commercial entities with strong profit motives:

“If we allow you to co-locate, then we are potentially forgoing any opportunity to earn income from [provider a], [provider b], [provider c] etc as the mast may become too crowded.  … our opportunity cost may be in the region of $10K – $20K p.a. depending on how many antennas you had. … However, my real issue is that we are in varying stages of planning our [radio technology] network build, and we won’t be getting to [this location] for a while.  Where possible, we will overlay [radio technology] on our existing sites and run both networks in parallel for a transitional period which may be months in duration.  Since we haven’t finalised these plans, I need to ensure that we don’t do anything that will make it harder to colocate both our networks on the same mast.”

“Co-location of point-to-point (P2P) transmission equipment is not available to [alternative provider] between sites where [the tower owner] is capable of providing Network and/or Access Services between those sites.”

In addition to blocking due to opportunity costs, the desire to protect existing commercial services, and future expansion plans, some providers, faced with regulation instigated by the Commerce Commission, have chosen to block new entrants to rural towers by leaving old passive infrastructure on the towers after active equipment is removed, artificially limiting the addition of new services to a tower. Others providers have chosen to keep individual point to point radio licenses for services they have not operated in a decade or more, preventing new operators from acquiring appropriate spectrum for rural use. While these moves are legal and commercially sensible, they are not in the best interest of rural New Zealand.

The idea of improving rural telecommunications by subsidizing existing commercial entities in their builds of rural infrastructure only works with the belief that reenforcing the status quo can provide rural communities with a level of service superior to that provided by a group of subsidized competitors, or with the belief that existing regulations are sufficient to ensure high levels of service to rural areas that would otherwise be uneconomic to service.

It is the opinion of a number of organizations, including TUANZ, Federated Farmers, and failed RBI bidders OpenGate, Torotoro Waea, and the Regional Fibre Group, that the government’s proposed path forward will not improve services for rural New Zealand. Given the history of investment in rural broadcasting and radiocommunications infrastructure, I am inclined to agree.

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