$31b in productivity gains

“The report shows digital fibre infrastructure has already delivered $31b of economic benefit to New Zealand between 2011 and 2023 and grew the economy by $8.8b in 2023 alone,” Deloitte Access Economic lead partner Liza Van Der Merwe says.

$163b more by 2033

Following “the successful completion of the UFB [rollout], the true extent of fibre’s impact on productivity is emerging”. The report sees a “productivity uplift” from fibre over the next decade that could add a cumulative $163b to NZ’s gross domestic product (GDP) over the next decade as GDP benefits reach $33.2b per year by 2033.

So why are we less productive?

Over the past few years, economists have highlighted NZ’s relatively poor productivity. Stats NZ’s latest figures, released in April this year for the 12 months to March 2023, saw negative growth for labour, capital and multi-factor productivity. The New Zealand Initiative’s Dr Bryce Wilkinson wrote, “Even more worrying is the long-term trend: decadal labour productivity growth has steadily declined from 1.9% p.a. in 2006 to a paltry 0.6% to 2023.” NZ is an OECD laggard. Factors including R&D spending have been in play.

Is it the case we would have been even worse off without the UFB?

“The short answer is yes. While our net productivity gains have been spotty, fibre’s productivity impact sits clearly in the black at $8.8b of annual GDP in 2023,” Van Der Merwe told the Herald.

“Treasury has said that New Zealand’s productivity presents significant long-term challenges for us as a country. However, we believe our report shines a light on a productivity success story – how public and private investment since the rollout of [UFB] has lifted NZ productivity higher than what it otherwise would have been.”

Benefits so far, and potential gains

The UFB softened the impact of Covid lockdowns on economy (which was of course still considerable), the report says. “During the pandemic, high-speed and reliable fibre connections enabled a swift transition to a digital working environment, ensuring business continuity and sustaining educational activities with minimal disruption.”

There were also gains tied to expanded uptake of e-commerce, cloud computing, digital healthcare and regional business reach, the report says, while home users have enjoyed better online gaming and more entertainment options with the rise of Netflix and other streamers.

“We have tapped into just 16% of the productivity benefits from New Zealand’s fibre network” so far, the report says.

It sees more productivity gains ahead if we can use fibre to close the digital divide and get more households online, help small businesses “lift their tech game” and harness AI’s potential, in part through recommendations that “policymakers [should] continue promoting increased AI usage and consider how current regulations will facilitate the responsible use of AI in the near future.

The Government should be an early adopter of digital infrastructure and open customer data, the report says. The report notes the Government has recently introduced ChatGPT and its AI Activator programme (though both are modest; ChatGPT involved two Callaghan Innovation staff spending less than 100 hours developing a chatbot, while the AI Activator programme aggregates various existing resources for easier access).

Alongside this, business associations should work with their members to guide them through adopting new technologies and sharing success stories”.

Technology Minister Judith Collins recently presented a paper to cabinet that outlined a “light-touch” approach to AI.

Remaining pain points

“The report shows the real value of investing in continuously improving the reach and quality of connectivity in Aotearoa,” says Technology Users Association of NZ (Tuanz) chief executive Craig Young.

“Tuanz was a key advocate for this once-in-a-generation project [the UFB] that the Government picked up and delivered as a successful public-private partnership.”

“But we also know, not only from the report but our own research, that we cannot stop – we must continue to develop access for those who have none or cannot afford it.”

A Tuanz communique issued today following its recent Rural Connectivity Symposium says Digital Equity Coalition Aotearoa and Figure NZ research indicates 380,000 households are in the lowest income bracket (under $42,000 per year), including 58,000 families with children, who “struggle to afford basic internet”.

Young told the Herald it’s hard for companies, and Government departments and councils, to realise the benefits of going fully digital when so many are stranded with no connectivity, or sub-par internet.

And despite $795 million being spent on the Rural Broadband Initiative (a wireless and mobile-heavy infrastructure spend that, like the 5G network builds in urban areas, falls outside of the scope of Deloitte’s report) and related projects, Tuanz has repeatedly highlighted what it sees as sub-par rural connectivity.

And a February 2024 briefing for the incoming Communications Minister (initially Melissa Lee, now Paul Goldsmith) said the urban UFB network is “world-class”, but “despite substantial Government investment, rural New Zealanders experience connectivity services that are slower, less reliable and more expensive than urban New Zealanders”.

Consumer NZ chief executive Jon Duffy said it affordable broadband was still a “postcode lottery”, with many rural Kiwis missing out on good service and pricing.

A $2.5b fibre push?

Earlier this year, Chorus proposed a $2-2.5b extension of the UFB from 87% to 95% of the population over a 10-year, $200-250m per year PPP. Chorus’s “fibre frontier” general manager Anna Mitchell said the project would give around 400,000 more Kiwis access to fibre, “closing the digital divide by two-thirds”. It would be more expensive because rural NZ had more challenging terrain, with a far-flung population.

Chorus said its plan was presented too late for this year’s budget, but it’s hoping it will be considered in future planning.

Deloitte’s modelling “assume that update and coverage of fibre will continue to increase to 95% by 2033,” its report says.

Goldsmith told the Tuanz symposium the Government is committed to addressing the disparity in connectivity between rural and urban areas, while acknowledging fiscal constraints. He did not outline any new initiatives. For now, Chorus’ $2.5b plan for a 95% push is still one of a number of options at the whiteboard stage.

Elon sneaks in

In the meantime, there’s been an interesting DIY trend. In August, the Commerce Commission released its annual Telecommunications Monitoring Report, which showed that NZ customer numbers for Elon Musk’s Starlink satellite broadband service, which costs between $79 and $150 for unlimited data to a home (cheap by satellite standards), had jumped from 12,000 to 37,000 the previous year. Around 34,000 of these connections are in rural areas,” the report said.

Tuanz’ communique notes Starlink faces nascent competition from Amazon’s Project Kuiper, which recently purchased land in NZ for satellite ground stations.

Young says a mix of technologies should be in play to improve rural broadband, including fibre, mobile, fixed-wireless – including services from provincial players under the “Wispa” alliance – and satellite.

Wispa (Wireless Internet Provider Association) chairman Mike Smith said there had been a focus on infrastructure. “The end users still need to be funded,” he said. His association wanted funding to rural households with the cost of upgrading a broadband connection.

Read Deloitte’s full report below.

Read Tuanz’ Rural Broadband Symposium Communique here.

Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.