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• Introduction
• The Survey
• Telecommunications and Rural Support Services
• Technology
• The Regulatory Environment
• Conclusions

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Executive Summary

Introduction

1. The Information Age has arrived with major implications for the national economy and for society.
2. "The Digital Divide" is the term used to indicate the gap that occurs between different parts of society, as a result of varying rates of adoption of Information Technology. The Digital Divide was first referred to in a socio-economic context to highlight disadvantaged groups unable to fully participate in the economy, and in society, because of their inability to be trained in, or access, Information Technology.
3. Within New Zealand there is growing concern about a Digital Divide developing between urban and rural areas due to differences in the telecommunications infrastructure.
4. Telecommunications is one of the pillars underpinning the Information Age. Access to telecommunications services, and the quality of telecommunications infrastructure, are of critical importance in delivering opportunities promised by the Information Age.

The Survey

1. A mail survey of over 15,000 rural delivery locations around New Zealand yielded a 20% response rate. The respondents to the survey showed a very high adoption rate of landline based telephones with over 99% ownership; mobile phones (70%); and computers (61%). Eighty percent of computer owners have Internet access for an overall Internet adoption rate of almost 50%.
2. Significant problems in infrastructure quality do exist for rural users of telecommunications services. Around 54% of respondents reported problems affecting telephone lines including noise, electric fences, and exchange overload. These problems are particularly of concern for Internet access. Mobile coverage is very widely reported as being problematic, with over three-quarters of mobile phone owners reporting problems, and 41% reporting problems bad enough to affect their ability to do business properly with them.
3. Telephone line infrastructure problems are worse with increasing distance from population centres (and therefore from exchanges). Reported problems increased from 44% for those living 0-5km from the nearest village to an unexpectedly high 82% by those living over 30kms away. It was also concluded that repair times increase with distance from town. These problems are already affecting the use of newer technologies such as the Internet which tend to require lines of higher than voice quality.
4. Additional phone lines are often required in households and businesses as they make more use of the Internet. Over one-third of the respondents who indicated they had tried to get a second line failed to do so, though it was not possible from the survey to conclude the reasons behind their failure. This may become a significant issue for the adoption of new technology.
5. In addition to telephone line problems, approximately 40% of respondents also indicated occasional problems with power supply.
6. There is a great deal of concern over the Emergency Services 111 system. Concerns exist about the ability to connect to 111 in an emergency due to telephone line problems such as exchange overloading, and the inadequate coverage of mobile phones. Problems have been reported by 1 in 5 of those using the service in the last two years, but the problems are mostly based on the inability of a centralised operator to correctly identify their location and direct emergency services to it, rather than telecommunication problems.
7. Mobile phone coverage in rural areas is reported as being patchy at best. It is having an obvious effect on the way in which business is being conducted and is considered a safety issue by many. Expressing geographic coverage as a function of 4 watt car kit capability does not give a true picture, as most rural users rely on handheld mobile phones just as their urban counterparts do.
8. Despite the infrastructure and operations problems, over half of respondents are optimistic that telecommunications-based technologies such as the Internet will be available, and will provide them with benefits they can take advantage of in the future. As long as infrastructure issues are addressed, this optimism is vital to the rural community adopting and capitalising on the new Information Economy.

Telecommunications and Rural Support Services

1. A small email survey was undertaken with libraries serving rural areas. The libraries that responded to contact all provided public access to the Internet through a single terminal. Total access time per day on the public access terminal varied between 2-6 hours.
2. In the area of telehealth it appears that New Zealand is only beginning to explore the use of telecommunications-based technology in the delivery of health services. It is questionable whether the copper-wire network structure is adequate for practical TeleHealth applications extending beyond provincial centres.

Technology

1. 1. Twisted-pair copper wire will continue to provide the main local access to the network in rural areas for the foreseeable future.
2. New technologies such as Asymmetric Digital Subscriber Line (ADSL) which greatly increase the capacity of twisted-pair copper wire, will not be available beyond rural towns due to physical constraints which limit its usefulness to 3-4kms from the exchange. The rollout of ADSL to provincial towns will take a number of years.
3. New investment in fibre optic cable by a number of companies will provide direct benefit to provincial centres, but not smaller towns, and definitely not beyond onto individual rural properties.
4. That said, technologies do exist which are about to be rolled out on a large scale nationally that will be of varying benefit to the rural sector. These include new generation wireless, including Wireless Application Protocol (WAP) mobile phones, and broadband satellite services.
5. The new wireless services will be suitable for high speed access to the Internet, but will largely be restricted to the same coverage areas as for existing cellular networks. This makes them suitable for use in some rural areas, but a large proportion of rural New Zealand will remain excluded. It is likely that in addition to providing mobile services, these wireless technologies will form a part of the network behind the scenes for fixed-location access in some areas where land lines would be the more traditional solution.
6. Broadband satellite services offer exciting opportunities for high speed access to the Internet throughout New Zealand, independent of geography, and so are likely to be of significant benefit to rural areas. Information is received from the ISP at high speeds from the satellite, but the lower volume of information sent from the user to the ISP must still travel over conventional infrastructure, meaning that copper wire infrastructure is still required. Satellite uplink obviating the need for landlines in this context is coming, but will not impact until the latter half of the decade.
7. Satellite mobile telephony will become more accessible. The main constraint for rural use is the higher associated costs over terrestrially-based wireless.
8. The one guarantee is that new technologies will continue to be developed and implemented. These will largely focus on the high value urban and high-use-mobile markets due to revenue considerations, though some will provide direct benefit to the rural market. Satellite-based technologies appear to be the most promising for overcoming the economic disadvantages of servicing low population density areas.
9. The Digital Divide that is already forming between urban and rural New Zealand due to the quality of the rural telecommunications infrastructure, will be partly addressed through the implementation of new technologies already planned by the private sector if they are adopted by the rural market. However, the copper-wire local access infrastructure will continue to be of great importance in rural New Zealand.

The Regulatory Environment

1. The New Zealand regulatory environment is generally described as "light handed" as compared with the much more highly regulated environment of countries such as the United States and Australia.
2. At the heart of New Zealand's regulatory environment as far as the residential consumer is concerned, is the Kiwi Share which in essence charges Telecom with maintaining the network reach as at time of privatisation, provides free local residential calling, and ensures prices will not rise above those at time of privatisation. The Kiwi Share is important to rural areas as it ensures that network access is maintained by the low(er) profit rural areas.
3. Arguably, the rural infrastructure problems reported in the survey (of rural locations) arise largely from demands placed on it through increasing Internet use. This requires higher quality lines, the ability to handle much longer duration calls, and consequently more concurrent users.
4. The debate around the Kiwi Share obligations revolves in large part around what level of infrastructure is mandated by it. Does it guarantee the maintenance of the standard and reach available a decade ago at time of privatisation, or does it require continuing improvement to meet current day demands imposed largely through Internet adoption? This is an especially important issue for rural areas because without competition for the local access business, as occurs in urban areas, regulatory requirement is the only pressure directed at line quality.
5. Telecom has signaled its intention to seek changes to the Kiwi Share obligations, and to use the Ministerial review to test some of its interpretations on issues such as pricing differentials between urban and rural areas. Early interconnect contracts are costing Telecom significantly with the massive increase in Internet traffic and there will be significant pressure for at least some changes to be made to the terms of the Kiwi Share.
6. Telecom estimates that upgrading the rural infrastructure to provide Internet access at 14.4kbps will cost $230 million, and to 33kbps, will cost $550 million. An access speed of 33kbps is generally considered to be the minimum by today's standards. Telecom has stated that this investment is beyond its capacity given the low population densities in rural areas, especially as it faces increasing competition in the highly profitably urban centres where the other telecommunications companies are focussing their efforts.
7. "Rural community Internet centres" have been suggested as one way in which the Digital Divide between rural and urban areas can be overcome, should the rural/urban infrastructure gap widen further. Public access points are an excellent policy vehicle when targeting socio-economic issues, but it is doubtful this would be a successful strategy for providing general access to a population already reporting over 50% with Internet access.
8. Countries such as the United States use an approach called a Universal Service Obligation (USO) to ensure equality of access to prescribed telecommunications services, and to ensure all participants in the Industry contribute on an equitable basis to the funding of the USO.
9. If a USO is introduced in New Zealand to replace the Kiwi Share, then it is imperative that the rural community lobby for its interests to be enshrined (in the new document) to ensure equitable access and continuing upgrading of infrastructure. Even if technology such as broad band satellite helps to reduce the Digital Divide based on geographic considerations, there are many issues needing to be addressed, including mobile telephony services which may go beyond the scope of the Kiwi Share.

Conclusions

Research Question (I) To what extent are the current institutional arrangements for telecommunications delivering adequate telecommunication services to rural people, businesses, and organisations?

1. Many respondents reported problems with access to the network due to overloading.
2. Significant problems with Internet use, including speed and dropped connections, were reported.
3. Emergency Services 111 problems appear to be mainly related to a centralised service which cannot direct resources to rural locations, rather than being telecommunication based.
4. Mobile telephone coverage with normal hand held phones is very patchy; the majority of respondents indicated that it has an impact on their ability to conduct their business.

Research Question (ii) What is required (in engineering terms) in order to deliver adequate services?

1. The two main issues for Internet access appear to be exchange overloading and network access speed. There are also issues which are external to the network which have been identified, including interference from electric fences. For mobile telephony, the very patchy coverage in rural areas is a significant issue.
2. An access speed of 33kbps is generally considered the minimum acceptable speed for current Internet use. Telecom states that upgrading the rural network to provide everyone with 14.4kbps access to the Internet will cost $230 million; to 33kbps will cost $550 million.
3. New technologies such as broadband satellite may take some of the pressure off the rural network if they are widely adopted, but a reliable uplink connection to the network is still required. Therefore, it is likely that the problems associated with exchange overloading due to concurrent calls, will continue unless upgrading of exchanges occurs. It is difficult to see how the rural sector can be adequately serviced for Internet access without access speeds of 33kbps over the next 2-5 years. Beyond that, of course, the need for speed is likely to continue to grow, but other technologies may begin to impact and take further pressure off the landline infrastructure.
4. For mobile telephony, the major issue is going to continue to be coverage. While new mobile technologies will soon be being rolled out, they all appear likely to have the same coverage "footprint," and so will have similar limitations in terms of coverage and costs. Satellite-based mobile telephony will solve the coverage problem, but (at least initially) this will be a costly service for the consumer relative to terrestrially-based mobile services.

Research Question (iii) If adequate services are not being delivered under the current institutional arrangements, why not?

1. Arguably, if it were not for the Internet, then it would be likely that the telecommunications services available to the rural population would be entirely adequate other than mobile services.
2. The current institutional arrangements were developed in a world pre-dating the Internet and the huge impact it has had on the telecommunications industry.
3. The Kiwi Share is one of the dominant arrangements affecting the rural telecommunications infrastructure. Telecom's contention is that network improvements beyond those for voice, cannot be funded by Telecom under the Kiwi Share obligation.
4. No other companies have opted to compete in the rural land line market, preferring to invest in the higher value (urban) markets, so competition will not force upgrades to network quality in rural areas as it does in urban areas.
5. A further problem associated with the Internet is the network interconnect agreements between Telecom and its rivals, signed before the Internet's impact became apparent. On the one hand, Internet use is driving the need for upgrading of exchanges, network capacity, and access speed. On the other hand, domestic Internet revenue does not bring a revenue stream with it, and in fact, costs Telecom in interconnect fees it has to pay to its competitors where the ISP is with another telecommunications company.
6. Mobile telephone services in rural areas are consistently described as poor due to patchy coverage. Competition between mobile service providers is intense, but is focussed on the main population centres and on the direct transportation corridors between them. The costs of establishing more complete rural mobile phone coverage are high, and difficult to justify given the low population density when there are other, higher value markets available.

Research Question (iv) What is the potential for new and emerging technologies to overcome rural telecommunications problems?

1. The new and emerging telecommunications technologies will provide some relief from the Digital Divide developing in the rural/urban infrastructure. In the medium term, technologies such as broadband satellite promise to give economic high speed access to the Internet, while at the same time taking some of the pressure off the network in terms of volume, but not concurrency of access. True two-way satellite access for voice and data transfer is forecast for the medium to longer term which will help to overcome concurrency problems as well.
2. At the same time, technologies such as ADSL are likely to be available only in the urban areas physically situated close to telephone exchanges, and so will exacerbate the Divide if no complementary technologies are offered rurally. Broadband satellite appears to be the rural population's only real hope at this time for a significant improvement in access, but at a cost.
3. Satellite-based mobile telephony will be increasingly available, but costs are not expected to be directly competitive against terrestrially-based wireless systems for some time.
4. The length of the wait for a technology based "silver bullet" for rural telecommunications is difficult to predict. The majority of R&D and investment in the industry appears to be focused on technology for the high value-high population density areas, and the high value mobile market. In this respect, the rural areas tend to be on the side of the technology stream waiting as an ancillary interest to a solution being provided to the urban areas.
5. New and emerging technologies do exist which will help to close the gap between rural and urban infrastructure, but it is likely that a geographic or population density component of cost structures will exist for a considerable time. The issue is really how this cost structure difference is dealt with.

Contact for Enquiries

Rural Affairs Coordinator
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND

Phone: +64 4 894 0675
Fax: +64 4 4 894 0745
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