[LINK] What happened to broadband in Australia? (Part1)

Stephen Loosley StephenLoosley at outlook.com
Wed Feb 27 15:52:41 AEDT 2019

“What happened to broadband in Australia?”

Essay by Michael Quigley  March 2019

NBN Co’s former CEO on how the Coalition broke the internet

It was a cold Saturday morning in Hobart in late July 2009. I was standing next to Stephen Conroy, the then minister for broadband, communications and the digital economy. We were there to hear Prime Minister Kevin Rudd announce that services of 100 megabits per second were going to be available from the National Broadband Network in three locations in Tasmania by July the following year.

For many of the attendees on that chilly morning this may not have seemed like a particularly challenging commitment, but to me it seemed to be exactly that. Only a few days earlier I had become the CEO and first employee of the company created to build Australia’s broadband network.

NBN Co had no premises and no employees. At that time it existed only on paper, with four Commonwealth officers as interim directors. So I turned to Senator Conroy and asked how the government intended to provide those services within a year. In his usual forthright manner he replied, with a smile, “Well, now you know why I hired you.”

As it turned out, those 100-megabits-per-second services to the three Tasmanian locations were made available by NBN Co in the time frame set on that July morning. Given the extensive product design, planning and architecture work required for the main NBN deployment, providing those services to three Tasmanian locations was a bit of a diversion. Such things were an accepted reality in managing a government business enterprise – just as regular attendance at Senate select committees, Senate Estimates hearings and parliamentary joint committees was an accepted part of the job for senior managers of NBN Co.

The diversion that was serious – in fact, disastrous – for the medium- and long-term future of fixed broadband services in Australia was the one introduced by the incoming Coalition government in late 2013.

Tony Abbott’s government replaced the largely fibre-to-the-premises (FTTP) model initiated by the Labor government with a Multi Technology Mix (MTM) model, which is still being deployed today.

The MTM, which uses a range of fixed-line architectures and technologies including fibre-to-the-node, fibre-to-the-curb and Hybrid Fibre Coaxial (HFC), will end up costing Australian taxpayers billions of dollars more than if the original deep-fibre NBN had been allowed to continue. It will also result in a network that is considerably less capable of meeting the nation’s future broadband needs.

The policy decisions made in September 2013, which mandated the use of existing copper and pay-TV cable technologies, have also created significant financial problems for NBN Co. In its most recent corporate plan, released in August 2018, NBN Co reported that the peak funding projection (that is, of the total equity plus debt required to complete the project) had increased to $50.9 billion. It is surprising that there has not been more of a public outcry regarding this figure, given that the Coalition estimate made in April 2013 was $29.5 billion. This represents a 70 per cent increase, largely due to the inherent costs of using the old copper and pay-TV cables.

And that may not be the end of these cost increases. There are some worrying trends that can be seen in NBN Co’s weekly progress report. At the end of June 2018 NBN Co reported that 1.44 million premises were not yet ready to connect even though they were in areas declared “ready for service”. This was up from 77,000 in June 2016. NBN Co is pushing a bow wave in front of them, particularly on the HFC network, which is going to have to be dealt with before the end of the project.

By comparison, the 5 per cent increase in the peak funding of Labor’s original FTTP-based plan, from $43 billion in April 2009 to $45 billion in September 2013, had both the Coalition and elements of the media declaring that Labor’s NBN was a disaster due to cost “blowouts”.

By way of example, in mid August 2010 a young reporter from The Australian contacted NBN Co’s communications department. He was writing a story after hearing somewhere that every home connected to the NBN would need to be rewired, at a cost of up to $3000. I spent 45 minutes on the phone with him, explaining that there was absolutely no need for any household to upgrade their internal wiring when connecting to the NBN. By the end of the telephone conversation he agreed that they had it wrong and he was going to write his story based on the facts I had provided.

I rather naively assumed that the 45 minutes on the phone was time well spent in averting the creation of an erroneous article. However, when published a day or two later, the article repeated the same claim of $3000 wiring costs and went on to say:

    The NBN, if built, will pass more than 10 million premises. If every premise spent an average of $500 on bandwidth distribution equipment, the extra cost to the nation beyond the $43bn price tag for the network would be $5bn.

    The Coalition has vowed if elected to scrap the NBN and substitute a modest $6.3bn network using existing copper, wireless and HFC cable technologies.

Even today, speculation continues as to why the press was so opposed to Labor’s NBN. The former prime minister Kevin Rudd recently wrote that the Murdoch media, in attacking Labor’s NBN, was trying to protect its interests in the Foxtel pay-TV asset. During my four years as CEO of NBN Co, I never saw any evidence that it was worried about NBN’s impact on Foxtel. In fact, it could be argued – and this was a position that I put to Kim Williams when he was Foxtel’s CEO – that a good outcome for Foxtel would be to transition off the HFC cable, deliver their broadcast content via satellite, and use the NBN for streamed services.

So if protecting the Foxtel pay-TV asset wasn’t the motivation for the relentless attacks on Labor’s NBN, what was driving the constant negative coverage?

The answer became clear to me in a meeting set up by Williams after he became CEO of News Limited (now News Corp Australia), with nine or ten of his editorial staff in attendance. This was a positive initiative aimed, I believe, at trying to improve the relationship between News Limited and NBN Co. Addressing the meeting, my NBN Co colleagues and I summarised the motivation and rationale behind the FTTP network, and reminded everyone of the view of the Australian Competition and Consumer Commission’s chair, Graeme Samuel, detailed in a May 2009 speech. The NBN, he said, could offer “serious advantages in a range of critical areas” such as health, education and teleworking, and an opportunity to correct longstanding structural problems in the telecommunications sector. He was referring to the problems created by successive governments privatising Telstra and not putting in place a competitive market structure.

No doubt the ACCC also recognised that private enterprise was never going to build a new fixed broadband network across Australia. The investment horizon is too long and the capital investment too high.

Certainly private enterprise would have built parts of such a network in areas of Australia where a good financial return could have been generated. But, as we told the meeting, it was unrealistic to expect private enterprise to provide every Australian premises with high-speed broadband access, and provide it at the same price regardless of where it is located.

We pointed out that of the three major fixed-line telecommunications deployments in Australia prior to the NBN, only two could be regarded as being successful – both built by governments. The first was the overland telegraph line built by the South Australian government in the 1870s. The second was the existing telephone copper network progressively built by the federal Postmaster-General’s Department, starting in the early part of the 20th century. Both turned out to be of great value to Australia.

The third major fixed-line investment – in HFC cable technology for pay-TV purposes – was attempted by two private sector telcos, Telstra and Optus. The HFC infrastructure was duplicated as the two companies chased each other down Australian streets until they both called a halt to their rollouts, after only covering the more wealthy and profitable parts of the cities. In terms of the utilisation of capital, this multi-billion dollar duplication of assets was hardly an ideal outcome.

News Limited editors did not argue any of these points during our meeting, but by the end of the discussion it was clear that none of these facts was convincing for them. News Limited’s position regarding the NBN seemed to be one of principle. Never mind that the private sector would never build an NBN, or that the current market structure was flawed, or that government had a successful history of fixed-line infrastructure building. The view from News Limited’s side of the table was that the government just shouldn’t be building this sort of public infrastructure.

News Limited was not alone in its position. One of the most frequent comments I heard during the dozens of public speeches and presentations that I gave on the NBN was “Why are you building this? No commercial company would undertake this project. The returns are too low and the risks are too high.” That was precisely the reason the government was doing it, I would reply – because no purely commercial entity would undertake a project like the NBN. The government was also doing it because of the massive social and economic benefits to the nation in having a ubiquitous, wholesale, uniformly priced, high-speed broadband network. And an FTTP-based network could provide an acceptable long-term financial return for the government while providing ever-greater speeds and utility for end users.

Another question I regularly had to answer during presentations was “Why are you building a new fixed-line network when the whole world is going mobile?” This was also one that Malcolm Turnbull put to me when he first became the shadow communications minister after the 2010 election. The reality is that both fixed and mobile networks will be needed long into the future, a view held by almost every telecommunications professional. This is supported by Australian Bureau of Statistics information on the amount of data that Australians are downloading, measured in gigabytes per month. In a three-month period ending June 2018, almost 94 per cent of data downloaded was on fixed networks. This means only 6 per cent of data was downloaded on mobile networks. This ratio has not changed significantly over the past decade. Not what you would expect to see if fixed networks really were going to become redundant.

It is true that 5G mobile will be more efficient and allow greater speeds than 4G, but not to the extent that one often hears hyped in the media. The shared spectrum on which mobile networks depend is a scarce resource, so there are always going to be performance limitations. These can be mitigated by building many more small mobile cell sites (and each will need to be connected to a fixed-line fibre network) or by using much higher frequencies where possible (at higher frequencies, however, the interference from buildings, foliage and heavy rain becomes much more significant).

We need mobile networks that allow us to roam freely, and that connect the many remote devices that will be part of the Internet of Things. But we also need fixed-line networks and, in particular, high-capacity fibre infrastructure to do the “heavy lifting” for requirements such as streaming video to large screens, remote health and education services, and data science applications that require large file transfers. Those in the industry who take a more realistic view of emerging technologies know that the same traffic congestion issues will still need to be tackled with 5G, and the improvement is going to be incremental.

For those remote premises (approximately 4 per cent) that couldn’t be reached by the deep-fibre or fixed wireless network, NBN Co had planned to launch two high-capacity satellites to provide broadband access. Turnbull spent many hours in parliamentary joint committee meetings trying to prove that NBN Co management was providing a “Rolls Royce” solution well beyond what was required. He repeatedly made the same argument to the media. “There is enough capacity on private satellites already in orbit or scheduled for launch for the NBN to deliver broadband to the 200,000 or so premises in remote Australia without building its own.” Even as late as August 2015, in an interview with Fairfax Media, he said, “There’s no question I was very critical of the proposal for government to build two satellites for the national broadband network.”

One of the companies Turnbull encouraged NBN Co to consider was NewSat. NBN Co had already concluded that NewSat’s business plan was dubious at best, and even if it did launch its Jabiru-1 satellite it was planned to be located over the Bay of Bengal – hardly ideal for providing broadband services across the Australian continent. But it seems NewSat’s management had Turnbull convinced that its planned satellite should be an integral part of the NBN.

Unfortunately for Turnbull’s credibility, NewSat collapsed amid concerns over mismanagement and questionable financial dealings. The Sydney Morning Herald in September 2018 reported that NewSat’s founder and CEO had been committed to stand trial following allegations that he funnelled significant amounts of money from NewSat into his private yacht business.

But one had to admire Turnbull’s flexibility. Not long after these statements were made he was spruiking the NBN satellites as a “game changer” for broadband services in rural and remote Australia, and his Strategic Review posited the launch of three NBN satellites rather than two!

Unfortunately, Turnbull’s flexibility did not extend to his MTM, even when his original April 2013 predictions were proven to be wildly optimistic. It may have been better if Turnbull, as the incoming shadow communications minister in September 2013, had followed the earlier exhortations of his leader, Tony Abbott, to use the money being spent on Labor’s NBN to instead duplicate the Pacific Highway or assist with flood recovery. The result may have been a delayed NBN, but it would more likely have been built using a future-proof technology.

The Coalition’s move to an MTM model has created ongoing financial problems for NBN Co and its shareholder, the government. In 2018, NBN Co reported that the estimated time to achieve positive cash flow had slipped out by a year, to 2022, and the peak funding had increased to $50.9 billion.

On current projections, the initial network build will be completed by 2020. From that time, the ongoing cash flow will be largely a function of revenue and operating costs, with interest costs playing a part. And, of course, another round of capital spending will be required before too long, because many of the poorly served fibre-to-the-node areas with long copper lines will require upgrades to cope with an ever increasing demand for speed and bandwidth. Unfortunately, the potential to generate revenue and reduce operating costs has been significantly degraded by the move to the MTM, so it will be a serious challenge for NBN Co to achieve a positive cash flow and long-term financial viability.

Predictable speed performance and higher reliability would have made the revenue generation capability of FTTP considerably better than that of the MTM model – both in terms of take-up rates and average revenue per user. End users who are prepared to pay for a higher capability service don’t have that option with the various technologies of the Coalition’s MTM ...


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