[LINK] NBN and Conroy

[stephen at melbpc.org.au]

NBN to build undersea cable to US if prices don’t fall

By Grahame Lynch, Posted on September 27th, 2012 
<www.commsday.com/commsday/2012/nbn-build-undersea-cable-prices-fall/>


Communications minister Stephen Conroy has threatened to build a new 
submarine cable to the United States if the market does not reduce prices 
from current levels.

His comments came as he rejected European proposals in front of the 
International Telecommunications Union to introduce a new sender party 
pays regime for international internet settlements, stating that 
consumers pay too much for the Internet already.

Speaking at a Columbia Institute for Tele-Information conference in New 
York City last Monday, Conroy told attendees that “if the international 
market doesn’t improve prices, for $250m, out of a $40b NBN budget, I’ll 
build a link to the US to bring prices down.”

He added, “there are a couple of commercial prospects [on that route] so 
that’s why I don’t want to leap in. But we pay too much and that’s why I 
do not support the proposal to charge (for Internet settlements) between 
countries.”

It’s not the first time that Conroy has flagged concerns about 
international bandwidth prices, but industry sources were surprised he 
still thinks it is an issue after several years of steep price cuts.

One telco CEO, who asked to be off the record, said that a greater 
concern was the NBN’s own proposed connectivity virtual circuit price of 
$20 per Mb, which would be a larger factor in end user costs than 
international capacity. 

Australia-US capacity costs have fallen to around $25 per Mb typically, 
with one recent deal rumoured to be priced as low as $8.

Conroy’s speech was his most candid yet in explaining the reasoning 
behind his NBN policy, with him acknowledging that it was “controversial” 
and “radical.”

He said the NBN model could not easily be replicated in other countries 
because of Australia’s unique system of federal power over 
telecommunications.

UNFETTERED POWER: “The regulation of telecommunications powers in 
Australia is exclusively federal. That means I am in charge of spectrum 
auctions, and if I say to everyone in this room ‘if you want to bid in 
our spectrum auction you’d better wear red underpants on your head’, I’ve 
got some news for you. You’ll be wearing them on your head,” said the 
minister. “I have unfettered legal power.”

But Conroy emphasised that it wasn’t because of the power he had that he 
was building an NBN but because of the “responsibility.”

He said that only a government could take the long view for such 
infrastructure projects, drawing an analogy for his audience with the US 
federal highway system.

Another motivation for the government-led build was the “bleak view” for 
telco financial prospects, saying that the “profits just weren’t there 
anymore.” He attributed the failure of the NBN Mark 1 FTTN tender in 2008 
to the fact it closed just a month after the collapse of Lehman Brothers 
and that none of the bids offered value for money.

Yet another factor behind the NBN build was the actions of the incumbent 
Telstra, who he said still made 92% of all profits in telecommunications 
some 15 years after liberalisation. “Telstra had offered an upgrade to 
FTTN for about 50% of homes but they would have charged $150 a month for 
24 Mbit/s,” he said, an allusion to its 2005-era proposals in the last 
term of the former Coalition government. 

He also accused Telstra of earlier driving its “challenger”—presumably 
Optus Vision—bankrupt in pursuing a parallel HFC build in the 1990s, 
which led to an outcome where only 28% of households in Australia were 
passed by cable.

Conroy acknowledged that Europe “are not big fans of my model… I’ve been 
offered money not to come and talk about the NBN there!”

“We are only requiring the NBN to make 7% [return] a year and no self-
respecting telco will get out of bed for less than 20%.” Conroy 
emphasised that the NBN had already signed 40 retail service providers 
and that end retail prices varied from between $40 and $100 per month for 
services between 12Mbit/s and 100Mbit/s.

Answering a question about the fixed versus wireless debate, he also 
said “if you want to think of the NBN as the biggest piece of backhaul 
for a wireless network then go for it.”

TURNBULL RESPONDS: Shadow communications minister Malcolm Turnbull 
reacted to Conroy’s speech last night stating “As Mark Twain said 
confessions are good for the soul but bad for the reputation but never 
more so than when a cabinet minister confesses to rampant megalomania.”

“He has confirmed in these remarks what so many have said about him; that 
he is a control freak who despises the private sector industry and 
regardless of the cost to the taxpayer is determined to use every element 
of his legal powers to increase the power of the government at the 
expense of the private sector.”

COMM BANK TO BECOME A TELCO? In an interesting aside, Conroy also hinted 
that the Commonwealth Bank was considering bypassing telcos and becoming 
a telco in its own right to go direct to customers. He also suggested 
that Australia supported the current system of Internet governance and 
that no case had been made as to why that should change—statements that 
provide support for the US as it resists attempts from European, Asian 
and Middle Eastern industry and government interests to radically 
overhaul international telecommunications regulations and governance.

Grahame Lynch

--
Cheers,
Stephen