Tom Koltai tomk at unwired.com.au
Fri Feb 25 10:06:52 AEDT 2011

> -----Original Message-----
> From: link-bounces at mailman.anu.edu.au 
> [mailto:link-bounces at mailman.anu.edu.au] On Behalf Of Roger Clarke
> Sent: Friday, 25 February 2011 9:03 AM
> To: link at anu.edu.au
> Subject: [LINK] SMH: NBN as Magic Pudding
> [There's a wonderful, old-fashioned diatribe in the SMH 
> today.  Copy below.
> [Boughton misrepresents both Alvin Toffler and Barry Jones, but he 
> does extract a few grins along the way.
> [Put this one up on the living-room wall:
> ["Australia will evolve into an earthly paradise of sylvan elves, or 
> magic puddings bathed in the dappled sunlight of a Norman Lindsay 
> scene, spinning endless value from magical rivers of information 
> flowing through bright veins of optical fibre filament".
> Broadband network lives in a magic pudding world of glowing optical 
> fibre filament
> Andrew Boughton - who is a director of the advisory firm 
> capitalC. SMH Business Section - Comment February 25, 2011 
> http://www.smh.com.au/business/broadband-network-lives-in-a-ma
> gic-pudding-world-of-glowing-optical-fibre-filament-20110224-1
> b76z.html
> [For the record, I agree that the magic pudding analogy is relevant; 
> *and* I support the NBN initiative.  It's a strategic ( = 
> un-cost-justifiable) initiative of such importance that large 
> quantities of us taxpayers' money *should* be invested in the 
> infrastructure - but this time *not* gifted to a corporation that is 
> responsible under law to exploit its monopoly.  Sure, the government 
> had to hold off some of the criticism by saying that the mature NBN 
> Co would be later sold off.  But we need a special model for managing 
> the infrastructure as a basis for busy competition in the higher 
> layers.]

I'm afraid you're too late Roger, the Train has left the station, and
only the big guys managed to catch it.

We have another Telstra, it's called, Telstra NBN POI Backhaul Monopoly.

Commentary from Simon Hacket explains: [My sardonic commentary follows
at the end]


Epilogue: 20th December 2010

Today (20th December 2010) the NBNCo released its 3 year corporate plan
and proposed wholesale product and pricing overview to the public.

It includes a decision that looks to have been driven by the ACCC and/or
the government to have. 120 POI's.  half way between 14 and 200.

Obviously this is not my preferred outcome.

In particular, 120 points of interconnect will generate higher setup and
running costs for all industry players (except Telstra, of course, as it
looks like these points will all be Telstra exchanges, in addition to
Telstra being paid off to shut down its copper network).

At a deep level it seems (to my way of thinking) as if the 120 POIs
model is a bit of an artificial construct, keeping an existing backhaul
market supported (to an extent) in the new world order.

In practice, this will raise end user retail costs for competitors to
Telstra, because the additional costs (both fixed and recurrent) to
build, operate, and maintain 120 points of interconnect will have to be
bourne by all industry players (except Telstra) in addition to the NBNCo
wholesale charges, Internet supply, national and international network
link costs, and of course support/staff costs and other business

Additional explanatory commentary.... [from the same link written two
mmonths earlier.]

In the NBN, following a public consultation process, the ultimate choice
of POI location and number is apparently being discussed behind closed
doors right now by the government (presumably in conversation with moral
equivalent here of France in the ATM story - Telstra) at this time.

The clear choice of NBNCo (and smaller RSPs) is for there to be a small
number of POI's (circa 14) located in capital cities. A small number of
POI's in capital city locations means dramatically lower economic and
technical barriers to entry and participation for all RSPs. It will lead
to a larger number of more diverse service providers (and services) on
the network.

The opposite view is held by the very largest RSP's (Telstra and Optus
especially), who have been lobbying for there to be a much larger number
of POI's (circa 200). This is not surprising, as these are the players
who own their own extensive fibre backbone networks that will let them
plug into 200 POI's without significant investment.

The actual location of these 200-ish POI's (a list I've not seen, though
I'd love to see it) are presumably ones that conveniently coincide with
the existing Telstra and Optus networks, meaning they will provide
essentially zero cost interfacing to the NBN for those larger players.

The 'many POI' model then means that all smaller players will be forced
to buy access from their own (generally) capital city based networks,
through to each of those 200 POIs, from one of the few players with that
existing fibre backbone structure in place.

The self-serving benefit of this for those larger players is obvious.

They will also permanently have their fingers in the value chain of
everyone else in the industry (something the NBN was intended to avoid)
by charging all the other RSPs to reach the NBN POI's via their fibre
backbones. Because there will be very few of the big players, the access
pricing to access the NBN POI's will tend toward cartel behaviour (high
price with no economic driver toward reducing it over time).

The last decade has provided a signature example of this behaviour in
the costs of a Telstra Wholesale construct (of a very similar sort)
called an "AGVC". Access costs for this existing economic access 'moat'
are a major cost input in retail ADSL2+ services, and these costs have
essentially not lowered in real terms in the last decade, while all
other end to end network access costs have dramatically improved over
that period. In effect, Telstra uses its wholesale division to transfer
profits from the rest of the industry into itself.

The last decade has also shown that where cartel-like behaviour occurs
in the telecommunications industry, it can be extremely long lived. The
signature example here is the 'Gang of Four' Peering cartel that has
existed in Australia for most of the last decade (though in practice it
is pretty much down to the 'Gang of Two' now - Telstra and Optus).

The ACCC accidentally created this cartel while trying to enhance
peering between ISP points of interconnect a long time ago (its a long
story). Since then, the ACCC have been frustratingly unprepared to fix
their own mistake, and have allowed Telstra and Optus to charge the rest
of the industry for network interconnect access between the Telstra and
Optus networks and other ISP backbones to this day.

So I guess we're all wasting our time.
The dudes in the Telstra war room have more "moves" than the Labor

This happened in 1997 with the POI's for the PSTN and the GSM
interconnects with Optus and it's happening all over again.

I understand how Ziggy switching Teams allowed the 1997 occurrence but
what excuse does anyone have this time round ?

Oh it's technical stuff and we didn't understand...
Oh we hired a consultant, he told us it was irrelevant...
We're only in power until the next elections and this is the deal we cut
so the Blue team would treat us nicely when they got back in...

Any excuse that's given, is not enough. 

Simon Hacket is right. Competition in Australia again favours the
Oligopoly and the little guys are out of the game.

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