Consumption pricing turns a free AI tool into a real operating cost

From novelty to line item

The conversation about business AI has moved on. The question is no longer whether it works but what it costs, and Datacom group chief executive Greg Davidson has given New Zealand boardrooms a blunt answer: more than you budgeted for.

Speaking to the NZ Herald on 31 July 2026, Davidson warned about surging ‘token’ costs as the major AI software providers shift to consumption-based pricing. The trap is simple. A tool looks cheap or free during a pilot. Then staff adopt it at scale, usage compounds, and the bill becomes a material operating cost that was never in anyone’s forecast.

That matches a broader pattern. The Herald has also reported companies baulking at soaring AI bills after the initial enthusiasm wore off. The binge is over. The invoice arrived.

The practical fix is boring, which is the point

Davidson’s advice is not to abandon AI but to buy it like a grown-up. His prescription, per the Herald, is a multi-vendor strategy built on ‘portability over lock-in, continuity’ rather than deep dependency on a single provider.

That lines up with what NBR analyst Tim Chesterfield argued in July 2026, that early generative AI adoption was a rush in which firms set aside ordinary governance rules, feeding proprietary data into third-party models without thinking carefully about where it went or who owned the compute doing the reasoning. The cost discipline businesses apply to every other software contract simply did not get applied to AI.

For any NZ business currently trialling AI tools, the takeaway is immediate. Negotiate exit rights. Keep the ability to switch. Assume today’s pilot pricing is a customer acquisition tactic, not a forever rate.

Datacom is betting its own balance sheet

Datacom is not just handing out advice. It is making a large capital bet on being the local alternative, and it has taken a profit hit to do it. The company’s net profit nearly halved to $20 million for the year ended 31 March 2026, down from $37 million, as it poured money into AI-grade infrastructure. Revenue rose 6.8% to $1.58 billion, but operating cash flow slid from $164 million to $75 million as capital expenditure accelerated.

Davidson framed the hit as deliberate. ‘Those decisions affect short-term profit, but they are the right choices for resilience and future growth,’ he said. The company now runs five data centres in New Zealand after acquiring the T4 facility at Highbrook in East Auckland, being upgraded for high-density AI computing. On the trading conditions, he was stark: ‘This is the most volatile world I’ve seen for supply chain. It’s worse than Covid.’

The harder question is who owns the infrastructure

Beyond cost, Davidson raised the sovereignty issue. NZ’s data centre assets are quietly moving offshore. Spark has already sold 75% of its data centre business, including its planned Dairy Flat facility, to an Australian private equity firm in a half-billion-dollar deal. Davidson’s read: ‘It’s all sliding away. It’s being acquired internationally.’

This is the same question New Zealand has asked about airports, power generation and fibre. Gehan Gunasekara of the University of Auckland warned on 26 July 2026 that reliance on foreign cloud providers leaves the country exposed to a ‘digital Strait of Hormuz’, where providers could be ordered to cut off ‘non-friendly’ governments.

That is not hypothetical. In June 2026, a US export-control directive forced Anthropic to disable two of its most capable models for every customer worldwide. AI Forum analyst Tom Maasland argued this proves that conditions of access, contractual exit rights and the ability to fall back to open-weight models matter as much as the price itself. The cheaper access-based path is not risk-free; it relocates risk from the balance sheet to the geopolitical domain.

What it means for NZ business

The two threads connect. A firm locked into a single offshore AI provider for core operations faces both the cost trap and the sovereignty trap at once.

Adoption is racing ahead regardless. The July 2025 Government AI Strategy cited a Datacom survey showing 67% of larger NZ businesses now use some form of AI, up from 48% in 2023. Yet 68% of NZ SMEs have no plans to invest in AI, versus 38% in Australia, meaning smaller firms risk falling further behind faster-moving competitors.

The operating cost pressure is real too. Electricity prices rose 12.5% in the March 2026 quarter, four times the 3.1% general inflation rate, and power is the dominant cost of running AI workloads locally. Prime Minister Christopher Luxon told the Herald he is working on NZ-specific AI guidelines, floating a condition that large data centres ‘bring or invest in additional electricity supply’. The detail is unspecified. Until it firms up, the discipline sits with the buyer: treat AI like any other vendor relationship, and assume the cheap pilot was always going to end.

Sources

• Datacom boss on how to beat surging AI costs, questions about local control (2026-07-31)
• Datacom profit nearly halves to $20 million as the tech giant pours money into AI data centres (2026-07)
• After the AI binge, companies baulk at soaring bills
• New Zealand’s strategy for artificial intelligence: Investing with confidence (2025-07)
• Consumers price index: March 2026 quarter (2026)
• NZ sleepwalking into a digital Strait of Hormuz (2026-07-26)
• Expert Perspective: Frontier AI and Trans-Tasman Sovereignty (2026-06-26)