Monday, 3 December 2012

NBN: How did we get here?

Why are we facing a 2013 election with the Coalition wanting to wind back the clock 25 years and the ALP wanting to jump the technology 25 years?
A full Optical Fibre Customer Access Network sounds like a good idea, technically and economically, but nobody has ever explained why we need to undertake a Big Bang conversion project, Now! (through to 2021). Is the question "either/or Copper/Fibre", or "how quickly" can we economically move to Fibre?
The answer lines in a series of Partisan Political decisions starting with the 1982 Davidson Enquiry into Telecommunications.



The two major Political Parties needed to reform Telecommunications to address a triplet of issues:

  • A general Market Failure since 2003/4 in providing any significant Broadband Network improvements or proposals to ever upgrade the C.A.N. to fibre, subsidised or not.
  • The decay of the copper phone Customer Access Network and the steady lessening of Australia's relative Broadband speed and market penetration.
  • The market dominance of Telstra and their active interventions in destroying new entrants and blocking change:
    • The Optus HFC Cable TV rollout, costing Telstra shareholders several $B's.
    • The failure of TransACT combined telephone and FTTN in Canberra, 2002. A modest $30M-140M write-off ($40MM on 'Phase 1', no 'Phase 2'. Total $150MM spent, sold for $10MM).
    • The failure of Agile/Internode phone/ADSL experiment.
    • The ACCC's unprecedented action in being forced to issue multiple "competition notices" against Telstra.
Legislators, the Regulator (the ACCC) and competitors to Telstra all agreed that an Open Access C.A.N. was needed to allow the status quo to be changed, and this would require Structural Separation of Telstra's wholesale and retail divisions, especially of the telephony/DSL C.A.N.

In his book, "Wired Brown Land", Paul Fletcher MP, one-time Optus executive, details the history 
with an Optus/Coalition viewpoint, and describes Telstra post-2004 as "a monster".


With the hung 43rd Parliament, the two major Parties adopted their usual adversarial, not collegiate, stance - but more so, forcing each Party into extreme positions on issues they might not have taken if not within this Political Pressure Cooker.

Even if the Government had wanted to slowly and sensibly transition to a full-fibre C.A.N., it couldn't: any low-rate-of-change plans they put into operation would be surely reserved by the Coalition when, not if, they next won power. Getting any legislation through both houses of the 43rd Parliament was also very difficult with neither major party having a majority in either house: small parties and independents held the balance of power and would demand concessions/changes to pass any version of legislation.

The August 2010 election saw the continuance by Gilard/Conroy of the 2009 NBN-2 policy of Rudd/Conroy, and the on-going opposition to it as "wasteful and inefficient" by the Coalition, offering a Private Sector solution, not unlike that which included OPEL, the Optus/Elders alliance that would've seen the largest WiMAX network in the world. (A guess, not a fact on WiMAX). It would seem that WiMAX has been currently overtaken by the 4G/LTE standard.

In the 2007 election, pre-GFC, Kevin Rudd had promised upto $4.7B grant, an amount Telstra floated to John Howard in 2005, to subside a private sector build of an FTTN National Broadband Network, NBN-1. In 2008, the tender was opened, with Telstra the first to deposit the $5MM surety. However, at the end of 2008, Telstra appeared only to release a 12 page Press Release, not a Tender Response. There apparently was a Telstra bid, but it was deemed non-compliant on the grounds of not providing credible plans for engaging Australian SME's on their project, and hence, after multiple legal opinions and requests for additional information from Telstra, their bid was excluded from consideration.

At the end of January, 2009, the Expert Panel reviewing the NBN-1 tenders submitted their report to the Government. It contained some surprises, summarised in this late 2009 presentation by Prof. Reg Coutts, a member of the Expert Panel:


  • The GFC constrained all the bids considered [access to debt/equity reduced]
    • Note: Telstra was excluded
  • Multiple technology approaches
    • FTTP feasible to reach 90% of households (& business)
    • Broadband wireless and advanced satellite for the 10% of households
  • FTTN not the way forward!
    • Unlikely cost effective evolution to FTTP
    • Compensation risk re Telstra [cutting into the Telstra-owned copper meant buying it]
  • Backhaul a key “bottleneck” for regional BB
  • Established evidence basis for a way forward



With these "Key Aspects" of NBN-2 noted by Prof. Coutts:

  • FTTP architecture - 90% of households (& workplaces)
    • Mandated for “green fields” from July 2010 - stalled!
    • Communications Alliance activities
    • Tasmania
  • Backhaul network
    • A$250 budget (initial) and initial links
  • Broadband wireless - 10% of households
    • Terrestrial wireless
    • 3rd Generation satellite
  • Regulatory change
    • To transform the sector
      • Started with ╩╗duct information╩╝ requirements
    • Industry structure review
  • Other Aspects
    • New public wholesale company (NBNCo)


The public, and I'm guessing the Industry, were surprised when a $4.7B subsidy turned into a $43B proposal for a Government Enterprise. Post-GFC, especially in the light of multiple stimulus packages with less-than-stellar execution and resulting political backlash, this seemed "A Brave Decision, Minister."

It seems Rudd/Conroy took the advice of the Expert Panel seriously and embraced the political risk.
And that later Gillard/Conroy bought into the Policy, with all its attendant downside.

Both the Coalition and ALP regard "Broadband" as necessary to the future economic development and competitiveness of the Australian Economy and supporting many aspects of our society.
Their interpretation of "Broadband" and Policies to implement it are quie different.

But they agree on one point, which was underlined by Paul Fletcher in his book: Telstra as a single, dominant, vertically-integrated entity in the Australian Telecommunications market prevented change and innovation by others. "What's Good for Telstra, is the only thing that will happen!" seems to be the practical upshot.

Both major Political parties viewed Structural Separation of Telstra, breaking apart the wholesale (C.A.N.) and retail companies, as essential reform, but differed in their preferred method of implementation.

If both sides of Politics agreed by the end of 2006 that Telstra was "a monster" and that Structural Separation of Telstra was necessary for an Open-Access C.A.N. and a healthy, competitive Telecommunications Industry in Australia, what happened?

Paul Fletcher in his book attributes the problem solely to Kim Beasley, circa 1988, in merging Telecom Australia and O.T.C. (the domestic and international Telco arms) into Telstra before granting Optus the duopoly Telco license (in exchange for buying AUSSAT) and setting up a technical regulator, Austel.

But the Howard Government were the last with their "hands on the tiller": in late 2006, the last tranche of government shares in Telstra, the T3 float, were sold.

Up until this point, it was possible for the (Howard) government to quite simply and without commercial or regulatory interventions or challenge, structurally separate Telstra. They could've, like BHP and Bluescope steel, allocated shares in he two (or more) new entities a 1:1 manner for existing shareholders, including the government, who could've continued with the T3 float, risking partial subscription in one or both of the new entities. BHP split itself along these lines, it was not unknown nor unusual.

My view is that Australia ended up with the "Telstra monster" precisely because the Howard Government chose not to Structurally Separate it. It was because an un-separated Telstra had prevented an open-access FTTN or evolution of the C.A.N. that the Rudd/Conroy government had to embrace the NBN-2 recommendation of the Expert Panel, whether it was good politics or not.

This does not excuse the ALP from all responsibility. At some point, it must have been possible to create a bipartisan policy that would've avoided the problems we are currently trying to circumvent, and which we will have to wait until 2021 to know if they've been resolved or made worse.

There is a quite reasonable history on-line for the period 1980-1997.

From personal communications with ex-Telstra Engineers, I've been told that Telstra, circa 1988 and it's first long-distance Optical Fibre (MEL-CBR-SYD), had setup then disbanded a planning unit for the rollout of a Fibre Customer Access Network. The Telstra management as early as 1990 understood that Optical Fibre would be needed in the subscriber loop, but had actively walked away from it.

[I haven't researched this further: there may be some hard evidence of this on the public record.]

Elsewise, I've talked to many current and former Telstra technicians and 'linesmen' and they have one consistent message: the State of the C.A.N. is worse than it appears "on paper". Since the massive downsizing post merger with OTC, management focus has moved to "profits" - and maintenance to the existing quality standards was deemed "uneconomic" (a guess, no refs), so rules were relaxed and minimising costs prioritised over maintaining the integrity and viability of the network.

We got to the point of needing to do a Big Bang replacement of the Customer Access Network, with Government funding, one short-sighted Partisan Political step at a time. Nobody wanted what happened, but they let it happen anyway.

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