[LINK] Ergas article in the Oz

[Richard Chirgwin]

My comments within the article. Note that I have not reproduced the 
entire piece

http://www.theaustralian.com.au/politics/opinion/well-pay-dearly-for-this-nbn-folly/story-e6frgd0x-1225884951797

> EIGHTEEN months ago, Telstra proposed risking $10 billion of its 
> shareholders' money building a high-speed broadband network.
[RC: 1. All investment is risk. Criticism of investment on the basis 
that it is a risk, rather than because a specific investment is 
excessively risky, is simplistic.
2. The Telstra proposal was not comparable to the NBN – it was for FTTN 
under a private monopoly.]

[snip]
> Last Sunday, the government announced an initial deal between Telstra 
> and the National Broadband Network Company. Under its terms, Telstra 
> will receive payments and benefits totalling $11bn post-tax. On top of 
> that, taxpayers will have to invest about $40bn of their own money.
[RC: the NBN build price tag is uncertain; the investment is intended to 
yield a return. Finally, it is an investment out of a specific 
instrument, the “Future Fund”, which is not general revenue and is not, 
strictly speaking, taxpayer funds.]

[snip]
> Central to those outcomes is the heads of agreement, which has two 
> basic components. A first, valued at some $5bn, is a payment for NBN 
> Co's use of Telstra's infrastructure. Fair enough. Given the decision, 
> however questionable, to build the NBN, let it not duplicate 
> facilities it could share. The remaining $6bn, however, is deeply 
> problematic, for at its heart is an agreement to suppress competition.
[snip]
> For that money, Telstra will hand over to the NBN the customers on its 
> copper network without even seeking their consent. This avoids NBN Co 
> having to win over those customers, reducing the need for keen pricing 
> and competent management.
[RC: The issue of customer consent is interesting. Carriers routinely 
migrate customers from old to new technology without their "consent".]
> But it gets worse. For Telstra will also cease providing high-speed 
> broadband service on its hybrid fibre coax network, which passes about 
> 20 per cent of homes.
[RC: The HFC network “passes” about 20 per cent of homes. The number of 
homes it serves is far lower; and its capacity for expansion to serve 
more homes in its footprint is limited. There are only 450,000 customers 
which bundle pay TV with another service, and the growth in bundled HFC 
penetration was zero in 2009-2010.]

[snip]
> Why is this being done? Because the HFC, which already offers 100 
> megabit/second service in Melbourne, could give the NBN a serious run 
> for its money. As the McKinsey/KPMG implementation study says: "In 
> many countries, HFC networks compete effectively with FTTP networks to 
> provide customers with high-speed broadband."
[RC: The HFC offers a 100 Mbps service shared between all customers on a 
node. This is not the same as a 100 Mbps dedicated fibre link.]
> And while SingTel Optus has its own HFC, Telstra's is far 
> better-placed to supply high speed service.
>
> That NBN Co wants to be rid of so effective a potential competitor is 
> unsurprising. But how can that be in the interests of the consumers?
>
> The answer is, it isn't. Already, decommissioning the copper lines 
> will eliminate the competition, based on use of those lines by 
> Telstra's rivals, that has spurred rapid increases in service speed, 
> coverage and affordability. By also removing the HFC, NBN Co will 
> secure a monopoly that the implementation study recognises is 
> unparalleled internationally. The consequent risk is not merely of 
> monopoly pricing and poor service quality. NBN Co is government-owned, 
> with all the potential that brings for inefficiency.
[RC:
1. The limit on the copper is probably greater than today’s ADSL2+ 
speeds. Twisted pair is not, however, a competitor to fibre.
2. Don't we already suffer monopoly pricing and poor service quality? 
Isn't that one of the complaints about current industry structure?]
> Telstra's HFC would have given regulators, consumers and taxpayers a 
> benchmark for comparison. That benchmark gone, NBN Co's accountability 
> is inevitably compromised.
[RC: The HFC would not have provided any such benchmark, because its 
performance cannot be compared to that of a dedicated fibre. Also, the 
HFC network is a monopoly – there are no competitive broadband providers 
on HFC.]

[snip]
> At how great a harm remains to be seen. But what is clear is that 
> nasty shocks lie ahead. Consider this. As part of the deal, the 
> government has offered a range of policy changes. Details are scant, 
> but one is the creation of a new government business, USO Co. That 
> business will bear some part, probably large, of the costs of shifting 
> customers from the copper network to the NBN.
[RC: This is not apparent from the policy. Funding for customer 
migration ($4 billion, to be paid by NBN Co) is separate to USO funding 
(part of the $2 billion to be funded by government). This undermines 
some of the points outlined below.]
> These costs, potentially in the order of $1bn, are entirely 
> attributable to the NBN; they should appear on NBN Co's books. But 
> they won't; nor will NBN Co have to convince consumers to bear them by 
> offering a compelling value proposition.
[RC: The two points, USO funding and NBN Co monopoly, are parts of 
different arguments. Further, Ergas ignores the structure of NBN Co – it 
was never meant to “convince consumers” because they are not NBN Co’s 
customers. NBN Co’s customers will be service providers.]
> Rather, they will be paid for through a barely visible tax on all 
> telecommunications services, including mobiles and wireless.
[RC: The USO is already funded through a ‘tax on all telecommunications 
services.” It’s perfectly visible: any individual can download the ACMA 
assessments for USO contributions each year. Ergas ignores both the 
detail of proposed USO funding and current USO funding.]

It's very hard for outsiders to unpick the details of policy and 
argument, which makes it incumbent on experts to be very careful and 
transparent in their handling of facts.

RC