[LINK] Ergas article in the Oz

[Frank O'Connor]

Mmmmm,

Henry Ergas has been paid to write position papers and 'independent 
research' for Telstra for the last 5 years.

Didn't know about his IPA connections though ... but given the 
coalition's offer to have Big H write a 'free' research paper for the 
NBN committee it all starts to make more sense.

					Regards,
---
At 8:55 AM +1000 28/6/10, Richard Chirgwin wrote:
>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
>_______________________________________________
>Link mailing list
>Link at mailman.anu.edu.au
>http://mailman.anu.edu.au/mailman/listinfo/link