[LINK] NBN & the Coalition

[stephen at melbpc.org.au]

Two NBN-related press items ..


1. "Coalition to end the NBN monopoly"

By Alan Kohler, 2nd Apr 2013
<http://www.businessspectator.com.au/article/2013/4/2/infrastructure/coalit
ion-end-nbn-monopoly>


If the Coalition wins this year’s election, two things will happen to the 
NBN: it will no longer be a monopoly and it will become about half user 
pays.
 
I understand one of the key elements of the Coalition’s NBN policy, to be 
released in a few weeks, is that Telstra will be able to compete with the 
NBN Co as a wholesale provider of broadband internet access using its 
hybrid fibre-coaxial (HFC) cable.
 
Under the current deal between Telstra and the NBN, Telstra is to be paid 
for migrating customers from both the copper access network and the HFC to 
the NBN, other than pay TV customers.
 
This means Telstra and the NBN Co will compete in the cities, where 
Telstra’s HFC cable passes about 600,000 homes, but not in regional areas, 
where NBN Co will retain a monopoly.
 
That, in turn, means two things: first, Telstra will continue to be an 
integrated retail/wholesale operator in the cities and the “structural 
separation” of Telstra will be confined to places where it has no HFC 
cable, and second, internet prices in the city are likely to be lower than 
in the bush.
 
Coalition communications spokesman, Malcolm Turnbull, is likely to defend 
the idea of a price differential between the city and the bush by 
legislating a uniform maximum price for wholesale internet access across 
Australia. If it is lower in some areas because of competition, then it’s 
felt that this will be politically acceptable as long as the maximum is 
reasonable.
 
Australia will therefore have a wholesale internet duopoly, with one of the 
two players also a retailer able to use its competitor’s network to deliver 
services as well. Should make the ACCC’s life more interesting.
 
The main reason for ending the NBN’s monopoly and allowing Telstra to 
compete with it is that the Coalition hopes that will allow cash payments 
to Telstra to be reduced.
 
The other way the Coalition will reduce the cost of the NBN, as is well 
known now, will be to stop the fibre rollout at ‘nodes’ that serve several 
hundred homes, with existing copper used for the last leg of the journey – 
that is, it will be FTTN (N for nodes) rather than FTTP (P for premises).
 
The current NBN process, which is badly behind schedule, involves running 
fibre down each street using Telstra’s ducts and pipes and then connecting 
each home for free.
 
Using the copper for the last section is expected to save about $2000 per 
home, or nearly $20 billion – almost halving the cost of the NBN to the 
government.
 
Households and business that want fibre all the way can get it – they just 
have to pay for it, presumably by writing a cheque to the government for 
$2000.
 
That leads to a few awkward complications, one being that there will be 
some homes and business already connected to NBN fibre to the premises 
network for free. Will Mr Turnbull send them an invoice for work done? 
Hardly. They’re just likely to be very lucky. But happily, given the delays 
in the NBN rollout, there won’t be too many of those.
 
More importantly, the pricing structure for the NBN will have to become 
much more complicated.
 
Apart from competitive pricing in the cities, there will presumably also 
have to be different – lower – prices for those who pay for fibre to their 
premises, otherwise why do it?
 
And bear in mind two things:
 
A. Once the NBN’s last mile of fibre is made user pays, it must stay that 
way forever. The government can’t suddenly announce in, say, ten years’ 
time that NBN fibre connections will henceforth be free without repaying 
all those who have already paid for their own fibre; and

B. Those who pay for fibre all the way will be the heaviest users of 
bandwidth, and therefore the most profitable customers. In some ways, NBN 
Co would be better off giving them fibre for nothing.

But by only running fibre to the nodes, and by allowing Telstra to compete 
with the NBN in the cities, the Coalition will cut the sticker price of the 
NBN to about $20 billion and thus make it happen more quickly and 
eventually become a more profitable business, which is what it has been 
promising to do.
--


2. "Turnbull's whiter-than-white elephant?"

By Rob Burgess 3rd Apr 2013
<http://www.businessspectator.com.au/article/2013/4/3/politics/turnbulls-
whiter-white-elephant> (snip)


Browsing through the many astute comments from Business Spectator readers 
yesterday, one is reminded of the parts of the Coalition's soon to be 
released plan that won't be foregrounded by Turnbull. They most certainly 
will be mentioned by Communications Minister Stephen Conroy, but who will 
hear his baying while he does time in the Labor doghouse for botching his 
government's attempt at media regulation?

Here are a few of the nasties:

– It's just not true that private fibre cables can be cheaply run from the 
fibre-to-the-node cabinets Turnbull wants to install in every street. The 
technology to convert a fibre backbone signal (light fired down a fibre 
optic cable) into digital electrical signals that travel along copper wires 
is not the same piece of kit as is being installed to provide the Conroy 
NBN. In simple terms, every FTTN cabinet would need one technology to split 
the backbone light signal into numerous FTTP signals, and one to send 
electrical signals along all the copper loops emanating from the 'node'. 
Both technologies would have to be installed in every node, just in case 
one premises in the street wanted fibre.

– If a team of NBN contractors rolling down a street can connect each 
dwelling for an average cost of $2,000, reduced economies of scale will 
make it more expensive to call contractors out on a piecemeal basis to 
connect single dwellings. Much more expensive. Even if a Coalition 
government mandates a fixed price for connections, the cost of the hauling 
a team out to install single fibres, over and over again, will cost the 
taxpayer a fortune.

– The patchwork nature of a Coalition plan will help preserve technology-
based monopolies, with cable TV being the big one. The variable quality of 
copper-based technologies, which vary in data speeds not only by area but 
by the often degraded nature of each single copper loop (so that speeds 
fall away in the rain, for instance), means that reliable cable-TV requires 
a reliable high speed link. At present, that is available to 600,000 homes 
through HFC cable, or via satellite. The Conroy NBN plan overbuilds the HFC 
capacity, but also effectively gives every premises (and, at the other end 
of the fibre, every small media start-up) the means to reliably 
transmit/receive on-demand video. As Business Spectator reader Scott Fraser 
pointed out yesterday: "Full speed FTTH would allow (heaven forbid) sports 
organisations to broadcast their own programs/games". To say that 
undermines a few lucrative broadcast rights deals is an understatement. 
Conversely, it opens up a new world of business opportunies – 'sports club 
as media owner' is just one example.

Turnbull, and his advisers, understand all of this very well. The main 
selling point for NBN 2.0 is that it would be delivered more quickly, and 
at less cost than the Conroy plan.

While that is certain to be true of the initial rollout, what will be the 
cost to the nation of adding FTTP connections, one by one, as the benefits 
of limitless bandwidth and lack of network congestion become apparent? The 
principle of user pays (where users can afford to pay) is a good one, but 
not if a $2000 installation ends up costing $5000.

Moreover, what will be the cost to the nation of those thousands of new 
business models (not just 'sport club as media owner', but 'small health 
clinic as online locum' or 'offshore Mandarin speaker as local tutor') 
never getting off the ground? It's hard to do a cost-benefit analysis for 
applications that will never be built.

Conroy has long argued that a uniform user experience, at a uniform price, 
is a pre-requisite for the innovation that will give birth to productivity 
enhancing business models in e-health, online education and e-commerce.

All of which makes it hard to understand why a man with Turnbull's 
knowledge of technology and media markets wants to be the guy who put his 
name to a network that (if the actual policy reflects Kohler's description) 
will stifle innovation and end up costing taxpayers/private broadband 
customers a lot more than 'Conroy's white elephant'. 

Turnbull's too smart for that. His seamless transition from thorn-in-
Abbott's side to committed NBN demolisher (to use Abbott's unfortunate 
word) is all too convenient. Just what is Turnbull up to?
--

Cheers,
Stephen