An expensive PROBE

, posted: 4-Apr-2007 13:21

Peter Griffin has a good story about the rather Cartmanesque PROBE taxpayers were subjected to, in today's Herald. PROBE stands for Provincial Broadband Extension and the idea behind it was to provide a state subsidy to make sure people in rural and remote areas wouldn't be left behind in the digital age - they too should get broadband, in the 900 remote schools especially.

The project was supposed to be done in 2003, but didn't get going until the year after because of "commercial negotiations"; it was completed in the middle of 2005.

How did it pan out then? Well, Trevor Mallard, the minister in charge of PROBE, called it a "dog's breakfast" earlier this year but now insists that it's working good, and delivering benefits to the rural community.

However, that's not quite how PROBE comes across in Griffin's story. For starters, there are only 2,000 customers on PROBE. The figure of $25 million is quoted as the cost for PROBE, but I have the official announcement plus a letter from the ministry stating the total committed to the project in 2004 was $49 million.

That's a staggering $24,150 per customer. (Incorrect - see update II below)

For the purpose of PROBE, New Zealand was divided into fifteen regions, one of which was to be supplied with broadband over satellite. A short list of nine providers was drawn up and invited to tender but although Walker Wireless/Woosh initially won the Southland contract, it failed to implement it in time and it was awarded to Telecom afterwards.

In total Telecom won the contracts for twelve of the fifteen areas. Counties Power/Wired Country won the Auckland area, Pacific Net the Tasman one and ICONZ was handed the satellite contract.

Apparently, PROBE was run for the MED by Amos Aked Swift:

Project Probe was developed by a team from the Ministry of Education, the Ministry of Economic Development and Amos Aked Swift (NZ) Ltd of Wellington. AAS was appointed to direct and manage the project, and involve local government, communities, schools nationwide, telecommunication service providers and network operators.

PROBE ended up diminishing what little competition there was in some of New Zealand's rural broadband supply: at the time, there were several resellers of state-owned enterprise BCL's Extend service, which uses Airspan Network's wireless gear in rural areas. I was told that BCL (now Kordia) tried to get the PROBE funding, so that it could offer the Extend gear at a uniform discount to all providers.

That didn't happen, and the subsidy went to Telecom whose Xtra retail arm was able to slash the cost of the hardware by half - from just under $1,500 to $700 - something ICONZ, Ihug and Inspire Net, also Extend resellers, couldn't match.

Now the Herald writes that uptake of the Extend service was poor nevertheless, because the equipment is too expensive and complex. Telecom also says there's a twenty per cent failure rate with the service, which is very high by any measure.

In comparison, Counties Power that won the PROBE funding for Auckland acted as a wholesaler of Wired Country only, with ISPs reselling the service to end users. I've asked Wired Country's new owners, Compass Communications, what happened to their PROBE efforts, but haven't received a reply yet.

Summarising the project, the e-government site as run by the State Services Commission says PROBE's success factors were:
  • A tight fit between the objectives of MED and MinEdu
  • The PROBE Charter which properly conceptualised the project, identified the objectives and described the principles and processes for implementation
  • A collaborative relationship between the PROBE team and the Regional Broadband Liaison Groups
  • Strong "buy-in" and support from the responsible Ministers
  • The progressive release of contracts (rather than simultaneous), which maintained the competitive pressure on potential bidders
But there were also a number of factors that could've been "managed better":
  • The early evaluation processes of the PSG were too slow
  • An attempt to catch up for lost time resulted in insufficient detail work on the initial planning documents
  • Constrained MinEdu resources to prepare schools and to add valued-added services
  • A full range of support programmes for video-conferencing were not immediately available, which slowed the uptake. Nevertheless, at December 2005 the use of video conferencing had expanded rapidly with 80 schools involved in deliverying or receiving video-conferencing enhanced courses. In 2006, 130 courses will be available.
  • There was an excessive expectation of additional funding from local government - their planning/budget cycles were too slow and they were unable to allocate funds in sufficient time.
  • The quality of input from the regions was highly variable and in some cases entirely inadequate. This required a good deal of assistance by PROBE staff, which cost the project as much as 12 months.
Perhaps Trevor Mallard was right on the mark, and Project PROBE is a dog's dinner more than anything?

Update Had feedback on this post, with some valid points like Telecom being the only telco bidder for the PROBE contracts. There was resistance to handing over so many of the PROBE areas to Telecom, but if it was the only choice, I guess there really was no alternative. Wonder why TelstraClear didn't join in?

It's also worth noting again that the schools now have PROBE-supplied broadband, something they didn't before - this is a good thing, of course. Schools were always the first focus of PROBE.

Update II Further feedback: the Herald story was edited and apparently mixes up Extend with PROBE. It seems Extend has 2,000 customers, but that figure is not the total amount for PROBE. The point of the story was to errm, probe, how much of the funding went into the Extend service, I'm told. More on Peter Griffin's blog, with some Extend customers writing in as well.

Update III After even more feedback, I'm inclined to say that the Herald story was unfair to PROBE. The project did what it set out to do, namely to hook up rural and remote schools with broadband at a total cost of $50 million.

That said, I still believe there's a need to provide a breakdown of how Telecom used the $34.4 million PROBE subsidy. It's one thing to say it's the telco's business how it provided the broadband, but the truth is that it was paid for by taxpayer money. The project is completed and there are no further "commercially sensitive" issues. Why then can't we be told how much was spent on BCL/Kordia Extend and how much went on DSL for instance? If PROBE meant Telecom was able to roll out DSL to rural and provincial areas, it would be good to have a breakdown of costs there for future reference, given what a vexed issue telecommunications investment in remote areas is.

As for the competition issue mentioned above, Pacific Net's success is held out as an example of how PROBE strengthened competition. That doesn't however invalidate what I wrote above with regards to the Extend service.

Other related posts:
Wikileaks keeps publishing despite Assange's arrest
Letter to Simon Power, minister of commerce re: Copyright (Infringing File Sharing) Amendment Bill
NZ government could create new last-mile monopoly with UFB

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