Thursday, 4 April 2013

NBN: For my retired friends:- Why we need an NBN

My dear friend, a retired nurse, wanted to know "Why?! we need an NBN"... I didn't have a good answer, nor, as I pointed out, has Labor created any story better than "it's the vibe".

Her's is a very good question and I'll try to do it justice.
There are two groups of people on whom this is wasted: those who've made-up their minds already, for or against.

Since starting this piece I've realised that Universal fast Internet Access is not about the subscriber, it is only about the business opportunities that flow from removing barriers to entry.

My answer now to my friend is simple:
We need consumers to have cheap, fast Internet access so our businesses have a large enough market to be competitive and survive, or we'll end up with all on-line businesses being overseas, like Hollywood. It's all about improving business opportunities, not giving you faster email.
There are two parts to this story:
  • Why is the Government building a new Telecommunications network when it sold the one it had, Telstra?
  • Things work well enough for most people now accessing the Internet, why spend billions more?
Story 1: Why do we need a National Broadband Network built by the Government, especially when it owned a Telco and sold it only ~6 years ago?

The short-answer is: the government shouldn't have to build a Broadband Network at all!

It isn't their job because for the last 20 years we've had a privatised, competitive Telecommunications sector, at least in theory.

The Internet exploded out of the halls of academe and I.T. companies in 1996 and since then has grown at an amazing rate. The headlong charge is still yet to slow.

In 2005, the new CEO of Telstra saw that his business was changing and the century old telephone service, Telstra's core business, was in serious trouble. We know he was right, because after the 2008 GFC, the Telstra share price continued to fall, ending around $2.60: well below the 2006 'T3' sale price of $3.60, despite the company being known for good yearly dividends and solid balance sheet.

Investors, via the stock market, prove very good at valuing a company's business and future prospects.
Since March 2011, when Telstra signed "Definitive Agreements" with NBN Co, their share price has taken off ($4.50+). In that time, the market has raised Telstra's value 70%, showing they are willing to put their money where their mouths are and that the business now has a future with the NBN.

That new American CEO for Telstra in 2005 didn't just wail and whine about "business challenges". He went to the Government and proposed building a National Broadband Network together.

Then, 2005, was exactly the right time to build what he proposed and to breathe new life into Telstra. In 2008, the new network would've been complete, earning money and providing value in the City and Bush. And giving Telstra, the business, a future after the old telephone service.

But for that scheme to work, and for Telstra to become a fully private company, the new Broadband Network had to be a separate company to allow everyone to access it on equal terms. For its own reasons, the Government of the day wouldn't kick-in for the new Network, nor create a separate company to do it. The regulator of Telecommunications services, the ACCC, also refused Telstra permission to build the new Network on the terms Telstra wanted.

The Telstra Board made the right business decision for its shareholders: we won't invest in a new Broadband Network if we can't control it.

Meanwhile, what were the rest of the private sector competitors doing about Broadband?
Quite a few tried and ultimately failed commercially: TransACT in the A.C.T. was the largest, but far from only, experiment, with 55,000 premises "passed" and able to be connected. After 10 years of struggle, the business was sold for 25% of what it'd cost to build. That's a lot of crushed dreams.

This has been the common fate of all the small-scale, local, attempts at building a Broadband Network.
The National part is the key to making it work.

The only business that could build a new National network was Optus, the second largest business - and it wasn't going to take on Telstra a second time. In 1994, they'd gone head-to-head with Telstra in building a new network for Cable T. After they'd spent $3 billion dollars and only covering 2.2M premises in 3 cities, around 30% of the National market, they stopped. Telstra had spent $4 billion, passed 2.5M premises, 80% of whom were the same houses as Optus passed. But the real difference was that Telstra signed a better deal for "Content" and created FOXTEL, still going, though never very profitable. Optus wrote off $1.4 billion in one go and Telstra $500-1000M. Neither profited from the venture.

In 2006, this is where we were: nobody who had the money and resources to build a National Broadband Network, would build one. Anyone who had the will, didn't have the customers, money or resources.

The people most disadvantaged by the lack of a single Broadband Network were the 10% of us outside the urban areas. Although some money from the Telstra 'T3' sale had been earmarked to help them, it didn't buy very much.

This was the business environment, a stalemate, that prompted Kevin Rudd to first propose a $5 billion National Broadband Network. When his independent expert panel of Finance, Business and Technical leaders assessed the responses, they unanimously agreed, none of them could be commercially viable because Telstra would either build one themselves, more cheaply as they'd already done to Optus with Cable TV, or Telstra would sink the project with high access costs to its copper lines.

This all came back to that first Government decision to privatise Telstra as a single company. If Telstra had been "structurally separated" in 2005, none of this ensuing mess would've resulted.

In all this, there are three disparate and often combative parties that have been in agreement that Australia needs a National Broadband Network:

  • Telstra and the other Telecommunications companies, especially the small players like TransACT who've plunked down their cash and given it a go. The new Telstra CEO started all this in 2005...
  • Investors, large and small, who wrote down the prospects of Telstra, and all other Telecommunications companies, and who've revalued Telstra when it signed onto the NBN.
  • The "Chattering Classes", especially in I.T., who've supported the idea, no matter how implemented.

Story 2: The Internet works well enough for me right now, why do we need to spend a cent?

The usual justification would be: "I'm an expert, Trust Me, we need it!".

Which won't fly with a deeply cynical electorate...

  • big budget #1: It's under $1500/house to provide the fibre, plus $2 billion shared bits n piece.
  • big budget #2: They're building *three* networks. 75% of the cost is for urban dwellers: 97% get fibre. The other 25% of the money is for the 3% of premises in far-flung places. We can't leave them behind, and so we're putting in $10B for our Country Cousins, including Miners.
  • big budget #3: Oh So Much!! The Govt raised $350B/year. Over 10 years, $35B is tiny, especially as they are borrowing the money and by 2033 they hope it will have paid for itself.
  • Big Projects take time: all big projects take time and because they've not been done before, don't go to plan or budget. It's the nature of the beast. It's why we have professional project managers...
  • Technological Development: Look at how motor cars have evolved since the FJ Holden.
  • dial-up modems were "horse and buggy". A great idea in 1965 to work with the 1925 technology in-use.
  • DSL modems are "steam engines, even diesel"
  • Fibre is the real deal, "jet engines". You can't do better.
  • Freeways. Why we need cruise control and safe cars with seat belts and airbags.
  • [Natural Monopoly] Toll ways: we grant 'monopolies' when its only the only way to do it. It's NOT economic to build two tollways side-by-side, as we found with Cable TV, both fail when one would've done well.
  • Ready when you're ready: most consumers only buy new cars every 3-10 years, yet manufacturers produce continuously and upgrade/improvement every year, not every 10.
  • What you can't see will hurt you, or benefit you when you need it. The Northern NSW stretch of the Princess Highway if still being duplicated after those horror bus crashes in 1997/8. If you don't travel on that stretch of road every day, is it a waste of money? If you drive to Brisbane once a decade, it's a very good investment... When its done, you wonder "what was all the fuss about".

The thing I can't demonstrate is just how quickly the Internet traffic continues to grow.
The whole of the Internet in 2007 is just how much it grew in 2011.

The Internet Changes Everything, Everywhere. For you to be able to buy your next computer, TV or 'fancy device' and for it, and its applications, to "Just Work", we have to keep up with this treadmill.

And there is only one technology that will scale 100 or 1000 times only by changing the box at either end.
That's like buying a Corolla and having it go faster than a jet fighter, just by changing petrol and tyres

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