NBN: Coalition non-Policy will lose it a third election

Mr Turnbull's CommsDay conference address is pure political rhetoric and says more about the Coalition in what it leaves out. It isn't just the absence of a Policy, coverage and pricing, or Costs to Build.

It's not a bold, confident statement about the future and how the Coalition will take the country there.

It's about spreading Fear-Uncertainty-and-Doubt (FUD), demonstrating the Coalitions' lack of Vision, Insight and Understanding of voters, the economy and especially Technology. This paucity of Vision will lead to a third Federal Electoral defeat, especially if Gillard choses a late March election to bring in the new Senators in July.



This piece is not intended as a political attack: the Government is as worthy of condemnation as the Opposition. In the current hung parliament, both sides continually fighting in the gutter have brought the institution into disrepute.

The reason the ALP is now reinventing Telecommunications is the Coalition under Howard failed to do it or invest in essential infrastructure and capitalise on the mining boom: preferring instead to sell assets as fast as it could to pay-down debt - Commonwealth Bank, QANTAS and Telstra after selling buildings and outsourcing as much I.T. as it could.
Surpluses were in large part due to increasing tax revenues from the boom, nothing to do with the Coalition efforts or policies.

For a government to set Budget Surpluses as a major policy goal is both ridiculous and ignorant.:

Governments are not business, a Surplus is not a Profit, it is over-taxing or under-investing. Governments and their Agencies need to be run efficiently and effectively, not "turn a profit".

Democratic governments are generally considered to be "of the People, for the People, by the People". That is: run for the collective benefit of citizens, not businesses, privileged individuals nor special interest groups like specific shareholders.

Cost/Benefit analyses for a Public Good, like shared infrastructure Utilities, need to broadly assess the Benefits - to count the impact on the whole economy, not the narrowly defined receipts to the business enterprise accruing the costs. The ALP's pre-election 2007 NBN Policy cites numerous economic analyses that amply justified the economic benefits of an NBN.

For Mr Turnbull to have raised the question in the first place showed an lack of understanding on the role and economics of Public Utilities - whilst underlining that the ALP had ample economic evidence for its NBN plans. To continue this theme now, I find bizarre to the point of wilful ignorance.

The Coalition under Howard did the worst thing possible for Telecommunications, not once but twice:

• it sold a majority stake in Telstra, losing control of a vertically integrated monopoly to a hostile, aggressive board and management team focussed on short-term profits, and
• ignored its own 2003 "Broadband Advisory Group" report and didn't start work towards an open-access NBN.

The 2008 FTTN tender by Rudd/Conroy for an NBN, with the Government offering $4.7B subsidy was only a co-funded version of the Telstra 2005 ADSL plan, albeit rolled-out nationally not for just the 5 major cities.

The outcome of the official tender process was the 2009 Expert Panel Report, saying:

• proposals lacked committed private sector funding;
• none of the national proposals was sufficiently well developed to present a value for money outcome; 
• no proposal submitted a business case that supported the roll out in five years of a NBN to 98 per cent of Australian homes and businesses with a Government contribution of $4.7 billion;
• FTTN is unlikely to provide an efficient upgrade path to FTTP;
• there was a risk of liability to pay compensation to Telstra for exclusive or near exclusive access to Telstra's customer access network; and
• proponents sought excessive regulatory restrictions on competitors building and operating their own fibre based networks in competition with the NBN (that is, overbuild protections).
• Telstra had been excluded from consideration because its tender response was non-compliant: they had failed to submit a detailed plan on how they'd engage SME's in the NBN project and didn't seek to address the lack when approached about it.

Not only is Mr Turnbull seemingly, because he won't release a Policy, saying that he wants again to "Go Back to the Future" of 2005. He wants us to believe that what wasn't economic, affordable or commercial in 2009 will result in "Better Broadband, Cheaper, Sooner" in 2013.

University of Adelaide Professor Emeritus of Communications, Reg Coutts, a member of the Expert Panel, told Computerworld Australia:

“The point is the NBN is not just about higher speeds, it is about ubiquity. Many of the problems with the current broadband rollout is it is patchwork quilt,” Coutts said. “Then you have to remember Australia is the fast technology follower market. We are still seeing the early days of the sorts of applications that require higher bandwidth.”

With Telstra’s copper network approaching the end of its life and few, if any telcos willing to fill in the blackspot patches in the country’s network quilt, Coutts maintained it is up to the Government to forge ahead with the plan as “the train has left the station”.

“Nobody can be definitive about when you hit the wall, but the wall is approaching and you can see it. Every developed country is going through this and because of the commercial context, the incumbent telco, with probably the exception of Verizon in the US, hasn’t got a business case for rolling out broadly fibre to the premise other than in restricted coverage to particular market segments in particular cities.”

“We are not building this so everyone can have an iPad,” he added “We are doing this so that we can restructure the deliver of health services, education, and science.”

“Essentially to go down the FTTN road would mean something in the order of, greater than 50 per cent of the capital being put into digital cabinets in the suburbs," he said. "They then become an obstacle to the final solution… fibre-to-the-premise. Fibre-to-the-node was not a stepping stone to fibre-to-the-premise. In fact, if anything it would put it backwards. The second reason, of course, is in no other market have people proceeded with fibre-to-the-node other than an incumbent. It is a solution that is the right solution for an incumbent that has a copper infrastructure.” [emphasis added]

These observations were borne out in the detailed NBN Implementation Study. Does Mr Turnbull seriously suggest he and his staff knows better than multiple groups of experts in both Telecommunications and Economics??

The only way I can see Mr Turnbull able to make his (apparent) plan work is to offer something much, much less. That won't fly well with the Digital Natives, now well into their twenties, nor with their increasingly Technophile parents and grand-parents.

Mr Turnbull correctly suggests that the costs of electronics are declining and this will decrease the cost of an FTTN. Where he is conveniently silent is that the costs related to Fibre Optic solutions is decreasing faster than for copper: Fibre roll-outs are getting cheaper much faster than VDSL.

Economist John de Ridder has researched and written extensively on Broadband, examining its role as a Utility, not a Profit-Centre Business. Ubiquitous Broadband is the 21st Century's core-enabling technology just as Reticulated Electricity enabled the last 100 years of economic transformation in the Developed World.

His conclusion: Broadband needs to be sold and provided as a Public Utility, not a high-profit commercial venture, to release its full value in the rest of the economy.
This is exactly the role of Governments: create Common-wealth by providing shared infrastructure that no individual or small group could afford.

Roads are a perfect example: could you imagine is all roads were privately owned and you paid tolls meter driven? Such a nonsensical approach blindly applying "the Free Market" is not even tried in the home of capitalism, the USA. Citizens pay taxes to unlock the benefits of Shared Utilities and Infrastructure and other Public Goods. Especially for those services or facilities where a single supplier is economically efficient. Imagine there were three toll roads from Sydney to Melbourne: none could be economically efficient with only a fraction of the traffic, quickly driving them all into a cost-cutting war that bankrupts everyone.

Piped broadband will deliver all the promises: Selling high-speed network access like electricity, gas or water is the way to go.

But we could be on the cusp of achieving True Broadband which will remove all these restrictions. True Broadband has three features:

• it will support any application from any provider. 
• It will be delivered over an unrestricted pipe like water.
• it should be affordable with a high level of adoption.

What drives broadband take-up? OECD paper. 2008

• Price
• Income
• Education
• Weather (Time outdoors, not competing for screen-time)
• Addressable Market
• Urbanisation
• Unbundling
• Competition

de Ridder's research shows there is consumer price-sensitivity, but  implies enormous demand elasticity in the market: as the price of services and devices has declined, sales and profits have burgeoned, probably beyond the wildest dreams of Telco executives stuck in the "Traditional Telco Pricing Model" of "what the market will bear" versus the "Cost-plus" small margins of NBN Co.

This driver, the non-direct cost benefit of new telecommunications services and devices, is the economic amplifier of "broadband", as we now call fully converged Digital Services.

We have a number of very good examples of Technology adoption in Australia. As a nation we are widely cited as been enthusiastic adopters of new technology.

Importantly, none of these trends were the subject of "Cost/Benefit" analyses. They were started as an uncertain journey into the unknown, probably supported by Overseas evidence, then expanded as demand surged:

• Networked PC's since 1991.
• Universal now in business.
• 50+% penetration into domestic market.
• AARNET.
• Founded in 1988, sold to Telstra after 2003. [Noted in 2003 B.A.G. report as a model 'aggregator', having just 12 staff]
• Fundamentally transformed Research and Tertiary Education in Australia, both in methods and cost structures.
• Led to later higher speed "research networks".
• Mobile Phones:
• Currently ~100% adoption rate, measured by services: 20M.
• 1997: 4% penetration,  635,000 services. Only 15 years ago. CAGR of 20% pa.
• $5.8B turnvover in 2006
• $6.4B contribution to GDP
• G1 Introduced 1987. 'AMPS', shutdown in 2000.
• G2 (GSM), introduced 1993.
• Introduced SMS ('texting')
• 642M texts sent in 2000-1
• 10.2B texts sent in 2011-2.
• G2 (CDMA), introduced 1999. Shutdown 2008.
• G3 (WCDMA/UMTS), introduced 2005-6.
• G4 (LTE) introduced 2011.
• The smartphone revolution is not yet 6 years old (iPhone in 2007), whilst tablet computing is not yet 3 years (iPad in 2010).
• Mobile devices, "Internet Readers", are redefining the Internet and Applications Markets, disrupting the established PC/Desktop market.
• Reliable, Robust Fixed-line services are more important in this new world.
• In the same way that Reticulated Electricity is even more important for those reliant on rechargeable devices.
• Mr Turnbull extolls the virtues of his iPad and is constantly seen carrying and using it.
• Did he do a Cost/Benefit before buying his iPad, or like all normal consumers said "I gotta have me one of those!", intuiting the benefits and satisfying his price-sensitivity.
• To be consistent, not hypocritical, Mr Turnbull needs to show the electorate his personal Cost/Benefit study leading to his iPad purchase.
• Apple since the iPod in 2000 has been disrupting one market after another, roughly on a 3-year cycle: all predicated on "broadband" services.
• Will 2013 be the year that they bring "a new way of watching TV" over the Internet?
• Will our ISP's drown in demand without an NBN following such a disruption?

We are left with many questions about Mr Turnbull's Policy and his vision for our Nations' Internet, one of the important economic bases and enablers of the 21st Century. We know from statistical data from 1960 onwards that we're in the midst of a massive structural change in the economy: every worker in every industry is being affected by new Technologies, none more pervasive or of more impact than Information Technology and its associated Digital Communications: I&CT.

The most important question, I think, is simple:

• If someone invents a must-have Internet-delivered Application or Service that requires increasingly high-speeds, how will the Coalition-NBN meet that demand?
• An FTTN solution simply can't take us there.
• Field-upgradeable MSAN's will allow Fibre services, but a poor-sort done expensively.

Arguing that "the market will fill the need" is fatuous and wrong: we have a single, strong incumbent who has shown themselves to be recalcitrant to the point of being actively obstructive (overbuilding the Optus Cable TV network and destroying that nascent market, extortionate ADSL wholesale pricing, or refusing to enable ADSL-2 where available are a few).

The examples that Mr Turnbull refers to from around the world underline the facts:

• Only in countries where the Government, or their fully-owned Telco, chose to provide Fibre as a Public Utility, does it exist for the general public.
• Everywhere else there has been a comprehensive market failure with FTTP: traditional Telcos want their usual premium prices for a now basic and commodity Utility service.

Lastly, it's incredible that the Coalition, champions of Business and Free Enterprise as they are, have failed to recognise both sides of the NBN roll-out:

• the NBN is about good broadband services to business as much as anything.
• The economic benefits of cheap, affordable high-speed bits-for-business has been documented for over a decade. More bandwidth, more profits, what's not to like??

If Mr Turnbull wants to slam-dunk the Governments' NBN, he needs to appeal to the Australian voters notion of "Fair Go" and our sentimentality for "The Bush" and its economic problems:

• Roll-out Fibre everywhere in the country there is reticulated electricity, using the same poles.
• There are a number of innovative solutions posited that leverage the already extensive, though 'thin', fibre Telstra has deployed for fixed telephones.
• Imaginatively reusing existing assets is key to producing a reliable country network and reducing roll-out cost and schedule.
• Prioritise country areas, train and hire local tradesmen and businesses by preference, leaving behind a skilled workforce for maintenance.

This might not be the cheapest version of an NBN, but it would fly incredibly well in the electorate.

Making the cities wait for new technology for once is not an entirely bad thing: waiting 5-6 years to deploy Fibre in the suburbs allows the roll-out to ride the technology cost-curve down.

Some stop gap, temporary solutions, like point-to-point WiFi, MDS or WiMax, might be needed to address demands for high-speed suburban services. But then, why do we have the CSIRO and the many fine research units in Universities is not to solve "interesting" problems?