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Analysis, Telecommunications - Written by Renai LeMay on Wednesday, October 24, 2012 16:30 - 52 Comments
Our NBN debate: Where everyone is partly wrong
analysis Like a blade out of the dark, this week ex-ACCC chief Graeme Samuel came from nowhere to drive a stake into the heart of the Coalition’s rival NBN policy, arguing that the FTTN technology it’s based on is “obsolete”. And just as viciously, Malcolm Turnbull fired back. But who is objectively on the right side of this storm in a teacup? As is so often in our flawed NBN debate, the answer is: ‘Nobody’.
There is no doubt that Graeme Samuel can be described as one of most objective and well-informed figures to be involved in Australia’s telecommunications industry. With a long career in law that led to a partnership at Phillips, Fox and Masel (now part of DLA Piper) and a five-year history in the 1980’s as the executive director of Macquarie Bank, as well as his spot in the 1990’s as a commissioner of the Australian Football League, Samuel was already one of the most senior figures in the Australian business community by the time the new millennium rolled around.
But it was Samuel’s role chairing the Australian Competition and Consumer Commission for a solid eight years from mid-2003 through mid-2011 that would see the executive’s name come to be mentioned almost daily in the top echelons of the nation’s telecommunications industry at times.
When Samuel came to the chair of the regulator in 2003, the forces of deregulation unleashed in 1997 had not yet fully taken hold of the industry. Most Australians still looked to Telstra as the provider of choice for their telecommunications needs, and if they were aware of other options, it was usually only Optus that got a look-in. Fresh in the memory of many would-be switchers was the 2001 collapse of the ill-fated One.Tel venture. But change was on the horizon, and as has so often been the case in many industries over the past twenty years, the Internet was the cause. Fuelled by the development of ADSL broadband technology, companies such as iiNet, Internode, Netspace, TPG and others were starting to challenge Telstra’s dominance of Australia’s Internet service provider market.
Along with several high-profile ACCC commissioners working under him and focused on the telco sector, Samuel played a critical role in this process. His tenure at the regulator saw the executive and his staff act as the adjudicator in a grinding daily battle hard-fought between Telstra’s rivals, which spent tens of millions prosecuting their case for better terms from the former monopolist, and Telstra’s own rear-guard action, which took its own toll on the company’s coffers.
Throughout this war, Samuel was never less than fair-minded and even-handed. Telstra’s rivals didn’t always get everything they asked for, but Telstra also was never allowed to get away with its more extreme, anti-competitive transgressions, such as the infamous early 2004 move by its BigPond division to lower its retail ASL broadband prices below the wholesale rates it was charging rivals.
It was out of the ashes of this arduous process that Labor’s flagship National Broadband Process was born; an elegant, if capital-intensive project that would sideline the need to restrain Telstra through regulatory means and deliver the structural separation the telecommunications industry has long demanded; while simultaneously delivering a massive improvement in broadband service delivery that would catapult Australia to the world stage in terms of our technological advances.
It is this context which Samuel brings to the ongoing debate between Labor and the Coalition over whether Australia should pursue a National Broadband Network based on fibre all the way to the premise (as under the current Labor NBN policy), or a much more limited fibre to the node rollout, as the Coalition, or more precisely, Shadow Communications Minister Malcolm Turnbull is proposing as a cheaper and faster alternative.
Samuel, now a managing director at corporate advisory firm Greenhill Caliburn – yes, the same company which favourably assessed the NBN’s business case back in 2010, although Samuel hadn’t joined it yet — told the Financial Review this week that the neighbourhood ‘nodes’ to be used under the Coalition’s plan were “obsolete equipment”. “You can’t reuse [nodes] or remodel them or develop them to provide fibre to the premises and you basically just have to throw them out,” he said.
Now, when Samuel was leading the ACCC during the height of the regulator’s engagement with Telstra, the Government and the rest of the telco sector on this issue, there was a great deal of truth to this statement.
Industry sources consulted by Delimiter this week noted that only a handful of years ago, it was much more difficult to upgrade the relevant pieces of networking gear (in this case, they are called ISAMs, or Integrated Service Access Managers) from a fibre to the node model to support the new generation of fibre to the home rollouts. As late as 2007, for example, we have been told, such an upgrade would be possible if the fibre protocol used was a P2P model – but not if it was the more capable GPON model which the current National Broadband Network fibre rollout is based on.
In addition, as Samuel also stated this week, such a model was actually keenly examined by the ACCC, as well as the Government’s panel of experts commissioned to assess commercial proposals during the first NBN tender process kicked off in early 2008. It was plainly found wanting, with the reality being that any such FTTN network rollout would eventually need to be upgraded to FTTH anyway. Why would you deploy technology that would be ‘obsolete’ in only a few years, Samuel’s thinking continues to go. And many, perhaps most, experts in the global telecommunications industry, not to mention the majority of the Australian public, likely agrees with him.
However, as is so often with commentators in Australia’s National Broadband Network debate, Samuel was only partially correct in his statement.
As Shadow Communications Minister Malcolm Turnbull pointed out this week, the development of Multi Service Access Nodes by networking vendors over the past few years has meant that broadband can now be delivered over copper (ADSL/VDSL) or fibre (GPON) from a single neighbourhood node. This model is being deployed in the US, UK, New Zealand and many other countries. And it’s getting cheaper.
“ … the cost trend for FTTN to FTTH conversion is falling,” Ovum research director and principal analyst David Kennedy told Delimiter this week. “Equipment vendors are well aware that the cost of conversion is a powerful reason for companies and countries to delay *any* FTTx investment. FTTH is very expensive, while FTTN raises uncertainty about possible costs of conversion. So the vendors have been developing hybrid cabinets that can support both FTTN (i.e. copper loops) and FTTH (i.e. PON fiber). That’s the MSAN technology that Turnbull’s office is referring to. There is no need to rip these out if you want to upgrade to FTTH … the cost trend is downward. Over the next few years, it’ll get lower and lower.”
In truth, Kennedy says, whether countries and telcos decide to deploy fibre to the node or fibre to the home depended on their appetite for risk. Those who believe that the need for broadband capacity is only growing continuously will inevitably invest in FTTH deployments, and face the risk that that capacity needs may plateau before return on investment is made. And while all the graphs for capacity demand head northward for now, there is precedent in the global technology sector for plateauing demand. One need only look at the decline in upgrade cycles for desktop PCs. We no longer buy faster, better processors every year – and many people now only buy them every five years.
Those who want to hedge their bets will deploy fibre to the node instead, wagering that applications requiring 100Mbps speeds may never eventuate. “If they don’t emerge, or if they prove insignificant, then FTTN will be a much better investment,” says Kennedy. “This is all a classic case of investment under conditions of uncertainty. Your attitude to risk will be a key determinant of how you want to proceed.”
However, Turnbull can’t crow just yet. Like Samuel, his argument this week contained truth, but it didn’t portray all of the available truth.
Industry sources point out that almost all known FTTN business cases used so far globally have been put forward by incumbent telcos, who regard their existing copper networks as sunk costs. This isn’t the case with respect to the National Broadband Network project, which would likely have to buy Telstra’s copper network off the former monopolist in order to replace it with a fibre to the node alternative. Just how much would that cost? Nobody really knows right now, and there are few informed guesses. Certainly Turnbull’s camp has been very reluctant to put a figure on such a purchase. And it’s not hard to guess at the public’s reaction to any government move to buy Telstra’s copper network for an amount likely in the tens of billions of dollars … before shutting much of it down.
Then, too, Turnbull has never answered a number of very basic questions about the Coalitions’ FTTN plan to start with, such as:
- What international examples of FTTN-style broadband deployments do you consider most pertinent to the Australian situation, and why?
- How long do you estimate it would take, if the Coalition wins the next Federal Election, to deploy FTTN to more than 90 percent of the Australian population?
- What, specifically, do you estimate would be the cost difference between deploying FTTN and FTTH as part of the NBN rollout?
- Do you consider it possible to re-work the current Telstra/NBN contract to focus on FTTN instead of FTTH, and how long do you estimate this would take?
- What broad details of this contract would need to change, and how long do you anticipate the ACCC would take to approve a modified version?
- Do you have a long-term plan to upgrade a FTTN-style network to a FTTH-style network, or a medium-term plan to allow ad-hoc upgrades of this network to FTTH?
- What do you consider to be the time frame on which a FTTN-style network would continue to be used without an upgrade to FTTH? Will there, in fact, be a need to upgrade in the long-term to FTTH? On what evidence do you have these beliefs?
- How would you address the claim that FTTN is a short to medium-term technology that will be superceded over the next several decades by FTTH, and that Australia should only be investing for the long-term when it comes to this kind of telecommunications infrastructure? On what evidence do you feel this way?
What does this leave us with? A telecommunications policy debate between a regulatory expert and lawyer who isn’t up to date on the exact nuances of today’s technology, and a politician who correctly points that out, but doesn’t address the much larger fundamental questions about his party’s own telecommunications policy. Not exactly the soundest ground to discuss the finer nuances of a national infrastructure project which will touch every corner of Australia and likely take a decade and tens of billions of dollars – whether it’s fibre to the home or fibre to the node – to construct.
We’re left with this flawed conversation because as human beings, we tend to take those with domain expertise seriously. Graeme Samuel must be reliably informed about the technical nuances of today’s MSAN products, because of his decade regulating Telstra, right? Wrong. He knows a lot, but we can’t take everything he says as technical gospel. Malcolm Turnbull, a notably more transparent and up-front politician than many of his colleagues, must be telling the whole truth about the Coalition’s NBN policy, because he has more ethics than anyone else in politics, right? Wrong. Turnbull is more transparent and ethical than almost anyone else in the Federal political arena, but like others, the Liberal MP will use half-truths or withhold information when he suits him.
And yet this is so often the make-up of Australia’s NBN debate. Half-truths and misleading statements; a lack of context and a lack of insight. Different sides bludgeoning each other with perjoratives such as “NBN cheerleader” – but not acknowledging the objective flaws in their own argument. It’s enough to fill onlookers and the general public with dismay; but then by this stage, with our poisonous political debate covering so many different areas, surely we’re used to it. And that – beyond the issue of whether Graeme Samuel or Malcolm Turnbull is correct this week – is the desperate main issue here. Why do we put up with such a pointless display of sound and fury, signifying nothing?
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