opinion The only way for Labor’s all-fibre National Broadband Network to sensibly function was for it to be a legislated infrastructure monopoly. But the Coalition’s watered-down, multi-technology alternative is a very different kettle of fish, and consumers will clearly benefit if rival telcos such as Telstra, Optus and TPG are allowed to overbuild portions of the network.
Over on Business Spectator this week, commentator Alan Kohler makes a very strong argument that Communications Minister Malcolm Turnbull must not allow telcos such as Telstra, Optus and TPG to overbuild portions of the Coalition’s Broadband Network (CBN) project, as all three have threatened to do.
Kohler’s argument is a simple one: Despite being a government-owned company, NBN Co is still a company, and has a responsibility to maximise the return on its capital. If the Government allows other telcos to build Fibre to the Basement in apartment buildings throughout metropolitan Australia, this will cut into NBN Co’s profitability and threaten its financial basis, causing an impact to the Government in turn.
Now, from Kohler’s primarily financial standpoint, and viewed through the framework of Labor’s previous all-fibre NBN plan, this argument makes a lot of sense. If you’re building a National Broadband Network based on primarily Fibre to the Premises technology, it’s pretty clear that you’re going to be using your profits from Australia’s dense metropolitan areas to subsidise the rollout in the more sparsely populated rural and regional areas of Australia.
Then too, there is no need to overbuild a FTTP network. Fibre to the Premises is far and away the best option for any kind of fixed-line telecommunications infrastructure. Deploying Fibre to the Basement, or even HFC cable, to apartment buildings in this context is pointless; it would be like giving retail customers the option of buying a beat-up 1970’s Holden Torana when they already own a Maserati.
But here’s the rub; NBN Co’s Strategic Review published in December last year made it clear that the Coalition is no longer planning to build a “national” broadband network, and it’s not planning to build its own network with Fibre to the Premises in most areas. That’s right, you’re entitled to feel ripped off: Malcolm Turnbull has pocketed the keys to your Maserati and is driving off into the Vaucluse sunset.
If the Government accepts the recommendations of the Strategic Review, around a third of Australian premises will receive HFC cable connections instead of Fibre to the Premises, and another 44 percent will receive Fibre to the Node or Fibre to the Basement. This dynamic changes the nature of the game entirely when it comes to infrastructure-based broadband competition.
Firstly, let’s consider the millions of Australian premises which are already using or will receive a HFC cable connection to their premises, under the Coalition’s new broadband plan. What is very clear in the existing broadband environment is that most Australians, even those within the HFC cable footprint, continue to prefer to use ADSL broadband over Telstra’s existing copper network, instead of adopting the HFC cable option.
HFC cable adoption has languished in Australia because it’s more expensive than ADSL, more difficult to connect, and has in some areas suffered network congestion issues that ADSL has not. In addition, you’ve historically only been able to buy it from two providers (Telstra and Optus), neither known for their customer service.
NBN Co may be able to overcome some of these problems, if it buys the HFC cable networks, upgrades them, opens them up to wholesale access and cuts prices. However, there is little evidence internationally that such a strategy will succeed, and even if it does, it’s likely to take some years. NBN Co’s own Strategic Review estimates that the company will take four years from calendar year 2015 to get its HFC job done.
In the meantime, I suggest that consumers would look very favourably on quick and dirty Fibre to the Basement rollouts by Telstra, Optus and TPG. Such rollouts would get better broadband very quickly to hundreds of thousands of apartments all around Australia. Real services, to real people, with significantly faster speeds, and faster than NBN Co can do it. Bingo. That’s what we call a real consumer outcome. Sure, the choice of providers will be limited, and I’m sure prices will be premium-level, but nobody’s forcing consumers to sign up to these new FTTB plans. Traditional ADSL options still exist and NBN Co will eventually come to the party as well.
In the long-term, I strongly suspect that Australian consumers living in apartments would prefer having various connectivity options, including both FTTB and HFC cable, from multiple providers, to one single mandated connection supplied by NBN Co (unless that mandated connection is FTTP).
I’m living in an apartment complex with HFC cable right now in a major metropolitan area, and I can tell you that I’d love to have several additional high-speed broadband connection options to this building. Having that flexibility would allow me to apply competitive pressure to my existing HFC cable broadband provider (Telstra) to deliver better services. Monopolies tend to breed stagnation.
Of course, not all apartment buildings will be served by HFC cable, under the Coalition’s plan. Many, even in the HFC cable footprint, will likely be served by either Fibre to the Node or Fibre to the Basement. In this context, on paper it does seem somewhat farcical that you might end up with three to four different providers, including Telstra, Optus, TPG and NBN Co, all running FTTB solutions into your building.
Industry commentators have long argued that telecommunications infrastructure is a natural monopoly, and in many cases I tend to agree. Arguably, premises only really need one fixed-line telecommunications network providing their broadband needs, as long as that network is open to equitable wholesale access.
However, this is beside the point. Telstra, Optus and TPG are private sector companies volunteering to deploy additional broadband infrastructure throughout Australia. Nobody will be holding a gun to consumers’ heads, forcing them to sign up for FTTB through these providers, and the Government should not be stopping these companies from risking their capital through infrastructure investment. Consumers will only benefit from having three to four different providers in their building all competing for their broadband budget, and the Government should leave the business case for these investments up to the companies themselves.
Kohler, with his argument based on NBN Co’s financial viability alone, has missed this point completely. Most Australians couldn’t care less about NBN Co’s financial viability. Certainly I have only a moderate interest in the issue, and I write about the company daily. The only reason anyone cared about NBN Co to start with was that the company was promising better broadband. If someone else can deliver that more quickly, they’ll vote with their wallets. The NBN debate should not be about the finances of one company, but rather about real outcomes for consumers.
There’s also the fact that, although it doesn’t like to admit it these days, the Australian Competition and Consumer Commission has long been in favour of this kind of competition in Australia’s broadband market. This kind of competition is what the ADSL wars of the 2000’s were all about, as those same companies and others like iiNet frantically competed to fill up telephone exchanges with their own DSLAMs, delivering the broadband most of us enjoy today. If Telstra, Optus and TPG have their way, that battle would now extend to FTTB hardware in apartment basements.
Despite the fact that he has recently made comments effectively delaying the planned FTTB rollouts for six months, Malcolm Turnbull is on record as supporting infrastructure-based competition too. “Infrastructure-based competition is the norm around the world because it drives investment, encourages innovation and keeps prices lower,” a frequently asked questions document about the Coalition’s broadband policy states. And the Minister, while in Opposition, regularly waxed lyrical about the benefits of keeping the HFC cable networks operational to compete with a national FTTP rollout.
The only stakeholder to be disadvantaged by this kind of competitive deployment is the Federal Government, due to the financial damage such competition would cause to NBN Co. As Kohler mentioned, competitive FTTB rollouts would undercut NBN Co’s business model of subsidising the bush with profits from cities.
However, one might well ask, why the hell should the Australian consumer living in a metropolitan apartment served by FTTB care about that? That’s an issue for the Government to sort out. Consumers just want better broadband, and they want it now. And they would rightly be outraged if the Government stopped private sector companies from (legally) providing it to them.
As for the bush, well, there should be no problem with the Government continuing to subsidise unprofitable telecommunications services outside the cities to the tune of billions of dollars, as it has done for almost two decades with the Universal Service Obligation rules.
Under Labor’s all-fibre NBN vision, the Government had a very solid technical and economical argument that NBN Co should enjoy monopoly powers over Australia’s fixed-line broadband market, because it was building expensive and technically superior infrastructure that the private sector would not, or could not. However, with that plan out the window, the Government’s argument against infrastructure-based competition has also evaporated.
Blocking productive private sector investment in order to maintain the business case of a flawed government monopoly is not behaviour one would expect from a Government dominated by the Liberal Party. So far Abbott and Co have shown themselves very willing to stick to their guns when it comes to getting the hell out of the way and letting the private sector do its job. Let’s hope they don’t decide to hit reverse and nobble competitive investment in the telecommunications sector, to ensure the business case for a government monopoly they’ve already drastically carved up in five short months.
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