As with the global financial crisis where a vast amount of uninformed comment was made by economists and journalists on a subject none of them really understood, are we seeing something similar with the national broadband network (NBN) proposal announced by the Government last week?
A brief history of telecommunications in Australia
Before getting into the NBN proposal, let’s look briefly at a little history. There’s a wealth of historical information at a website Caslon Analytics from which it is hereby acknowledged that most of the following history is excerpted. As this is a rather long piece, if you wish to skip the past history, scroll down to the heading: Recent events in telecommunications. Or if you know all about the new NBN proposal and it’s just the pure politics you want, you may wish to start at: Now for the politics. [more]
Telecommunications in Australia began in 1854 with a telegraph line from Melbourne city to Williamstown, publicly funded but privately constructed. The telegraph gradually spread around the country and eventually by cable to Darwin, Singapore, the UK and New Zealand. For the first fifty years most people in Australia experienced telecommunications through telegraphy; it was thus at second hand, rather than direct person-to-person telephony. Australia's first telephone service (connecting the Melbourne and South Melbourne offices of Robinson Brothers) was launched in 1879, with the first telephone exchange opened in Melbourne in 1880. The Australian networks were government assets operating under colonial legislation modelled on that of Britain. The colonial networks (staff, switches, wires, handsets, buildings etc) were transferred to the Commonwealth and became the responsibility of the first Postmaster-General (PMG), a federal Minister overseeing the Postmaster-General's Department that managed all domestic telephone, telegraph and postal services.
A public radio-telephone service between Australia and New Zealand commenced in 1930, and the following year that was linked to the UK-Australia radio-telephone service, which utilised beam wireless stations in Victoria that were opened in 1927 by Amalgamated Wireless Australasia (AWA). In 1946 the federal government acquired AWA's shortwave broadcasting assets, which formed the basis of the Overseas Telecommunications Commission (OTC), a new statutory body with responsibility for the nation's international telecommunications services. In 1975 telecommunication regulation and delivery was restructured, with PMG handling all postal services, OTC retaining responsibility for international telecommunications and the Australian Telecommunication Commission (trading as Telecom Australia) being established to provide public telecommunication services within Australia.
Faced with demands from domestic and commercial users for lower prices and better access to the network, the monopoly network operator in Australia adopted two strategies. One was to roll out basic infrastructure across the nation, minimising investment through technical compromises in the location of exchanges and use of twisted pair connections to households. Those compromises meant that much of the network in place at 2003 was unsuitable for ADSL. Upgrading to broadband was not possible without significant investment. A second strategy was to acknowledge that all customers were not equal and that commercial customers – in particular major organisations – both could and would pay a premium for a higher quality of service based on enhanced infrastructure. One example in the 1970s was the PMG's Common User Data Network (CUDN), a packet-switching scheme allowing simultaneous access by multiple users for the exchange of information between computers and featuring a primitive electronic mail system.
The 1982 Davidson Enquiry regarding private sector involvement in delivery of existing/proposed telecommunications services recommended ending Telecom Australia's monopoly. In the preceding year Aussat Pty Ltd, another government agency, had been established to operate domestic satellite telecommunication and broadcasting services.
OTC and Telecom were accordingly merged as Australian & Overseas Telecommunications Corporation Ltd (AOTC) in 1992, immediately following the decision that Optus Communications – a private sector entity owned by a consortium that included BellSouth – would be given Australia's second general carrier licence.
AOTC was rebadged as Telstra Corporation in 1993, trading internationally as Telstra from that year and domestically from 1995. In July 1997 the Australian telecommunications sector was opened for full competition with removal of restrictions on the number of licensed operators and through anti-competition mechanisms under the oversight of the ACCC. Telstra was partly privatised in November 1997 through sale by the Commonwealth of around 33.3% of its shareholding (T1). A further 16.6% was sold by the Commonwealth in September 1999 (T2); sale of the government's remaining 50.1% stake in late 2006 required enabling legislation (T3).
The history of Internet Service Providers (ISPs) and Internet Content Hosts (ICHs) in Australia followed the same trajectory as in North America and much of Europe. Wireless networking in Australia – like that in Europe and North America – took off in the closing stages of the 1990s dot-com boom. ADSL (Asymmetric Digital Subscriber Line) which uses copper subscriber telephone lines, was developed in the late nineties in the US and spread steadily. For more historical details, click here.
Recent events in telecommunications
For years Telstra has had a troubled relationship with the federal Government, especially since the arrival of Sol Trujillo as CEO along with his amigos. They have led a push against what they saw as restrictive regulation of the industry which they insisted affected Telstra’s competitive edge and its bottom line. They didn’t get far with the Howard Government in having the regulatory framework eased in Telstra’s favour.
In September 2007, the Howard Government approved a funding agreement for a new national wireless and wired broadband network with OPEL Networks, a joint venture between Optus and Elders. OPEL Networks was to build a national broadband network using a combination of WiMAX and ADSL technologies across some 638,000 square kilometres and costing $1.9 billion. However the Rudd Government, which during the 2007 election campaign had proposed its own $4.7 billion National Broadband Network scheme, involving a partnership with the private sector to deliver 12 megabits per second broadband to 98 percent of Australians within five years, terminated the funding for the OPEL Networks in April 2008. The Minister for Broadband, Stephen Conroy, said OPEL had failed to meet the terms of the contract.
On April 11 2008.the Rudd Government released a request for proposal (RFP) for its $4.7 billion national broadband network (NBN) using fibre to-the-node technology, which required the final connection from the fibre optic node (which might be at the end of the street) to premises by the existing copper wire network, owned by Telstra.
Telstra put in a submission of just a few pages and was dropped from the bidding process last December after the Government rejected its proposal on the grounds that it did not meet the proposal’s specifications. This left several bidders including the Acacia consortium, Optus and Axia vying for the contract. An independent Panel of Experts was created to review the bids. Because the panel judged that none of the submitted bids offered value for money to the taxpayer, and raised the question whether any of them could deliver, the Government terminated the fibre-to-the-node broadband tender process
On 7 April 2009 the Government announced an alternative proposal – the establishment of a new company to build and operate a new super fast National Broadband Network in partnership with the private sector. Its object would be to connect 90 percent of all Australian homes, schools and workplaces with broadband services with speeds up to 100 megabits per second, a 100 times faster than those currently used by many households and businesses, and connect all other premises in Australia with next generation wireless and satellite technologies that would deliver broadband speeds of 12 megabits per second, so that every house, school and business in Australia would get access to affordable fast broadband with fibre-to-the-premises (FTTP) technology (also known as fibre-to-the-home FTTH). The details and specifications are here.
In announcing the plan, the PM said the Government would hold a majority share in the new company, which would be part-owned by the private sector to a cap of 49%. There would be a joint $43 billion investment into the project over eight years. $4.7 billion already set aside by the Government under its Building Australia fund would go straight into the project and the Government would also seek to raise money through ‘Aussie Infrastructure Bonds’. It would then gradually sell its share of the company five years after the project was completed. He said the company, which would operate separately from the retail telecommunications sector, would inject a 'new competitive force' into the telecommunications market. He also said that it would create up to 25,000 local jobs every year, on average, over the 8 year life of the project.
The Government's NBN proposal was based on expert advice from the Panel of Experts and others, which encouraged the Government to invest in optical fibre technology, supplemented by next-generation wireless and satellite technologies. The ACCC also endorsed the use of FTTP as a superior technology to fibre-to-the-node.
Legislative changes that would govern the national broadband network company and facilitate the rollout of fibre networks would be necessary.
An implementation study will now begin to determine the operating arrangements, detailed network design, and ways to attract private sector investment, for roll-out early 2010, and ways to provide procurement opportunities for local businesses. The Panel of Experts recommended that negotiations with the Tasmanian Government be fast-tracked so that a rollout of a FTTP network and next generation wireless services could begin in Tasmania by July 2009.
Measures are also planned to address 'black spots' through the timely rollout of fibre optic transmission links connecting cities, major regional centres and rural towns – so as to deliver improvements to telecommunication services in the short term.
A consultative process on necessary changes to the existing telecommunications regulatory regime will now be commenced, guided by a Government discussion paper on the subject.
Now for the politics
So far this piece has been mainly about verifiable facts. Let’s look now at the politics.
Nick Minchin, Opposition Communications spokesman was fast out of the blocks with unqualified condemnation – no black and white, just black. Speaking on ABC radio’s The World Today immediately after the announcement, he said “...the Government had wasted 18 months and $20 million dollars on a process that has ended in complete and utter failure and had to be abandoned.” But was it the process that failed? The failure to find a suitable company or consortium resulted from Telstra, the one most likely to be capable, dealing itself out of contention, and the remaining players, who were always going to struggle, especially in the current financial crisis, unable to convince the Panel of Experts that their proposals were value for taxpayers’ money. Minchin went on to use phrases such as “a complete and utter fiasco”, calling the new plan “a highway to nowhere”, “pie in the sky”, “so grandiose as to be undeliverable” and predicted it would be “the all time great white elephant if it was ever built, which I doubt”. To leave no uncertainty in listener’s minds, and by way of explanation, he added “it’s ludicrous to invest in a technology associated with considerable risk to taxpayers and investors.” You can play it in all its negativity from the side panel of Rudd redraws broadband landscape
Malcolm Turnbull too was quick to condemn the new plan. Quoting his experience in establishing the email server Ozemail, he confidently declared that it would not be viable. That he used his experience in establishing an email server as sufficient to can a plan for a super fast NBN although the technology is vastly different, suggests he’s out of touch with contemporary IT. “It won’t happen”, he insisted, adding that investors will not be interested and the Government will have to pick up most of the tab. He hinted that to protect taxpayers from the huge Government outlays required, the Coalition would oppose legislation to establish the scheme.
But it wasn’t long before Barnaby Joyce was making supportive noises, indicating that this was the Nationals’ plan anyway. Then along came Liberal Opposition Leader in Tasmania Will Hodgman indicating his support for the plan, as did Troy Buswell, WA Liberal Treasurer. Then Barnaby predicted that the legislation would pass the Senate as the Greens would quibble around the edges but would eventually come round, as would the Independents. Maybe this was wishful thinking as it would be a substantial embarrassment if the Coalition obstructed the legislation and was held responsible for its defeat. Turnbull has some careful strategic thinking ahead of him.
This morning Turnbull takes a different tack in The Australian in an article Ruddnet is too good to be true. He says: “The truth is that a new broadband network of this kind could only operate with a massive government subsidy, probably most of the full $43 billion.” He then goes on to demand that Rudd “...tell us, not later than the budget, what advice he has on the economics of this network...” So Turnbull seems already to be moving the Coalition from appearing simply to oppose the NBN to asking for justification of the business case.
Those who oppose the NBN plan seem to be arguing against it on two grounds, financial and technical. Financially they doubt whether it is commercially viable and therefore doubt whether private investors will be interested, particularly in the present economic climate. They argue that if they were not prepared to invest in the initial more modest scheme, why would they invest in the larger one? But several firms were prepared to invest in the modest scheme; it was the Expert Panel that rejected their offers. A much larger scheme that promises so much more might be more attractive. Optus and TransACT have indicated interest; Optus believes it will be attractive to investors. Even Telstra, whose board members must be asking how they got themselves into this situation, are making conciliatory noises. The choice of being left out, or coming on board the wholesale arrangement that applies and facing the possibility of splitting Telstra’s wholesale and retail arms, is likely creating much gnashing of teeth and strategic thinking. Just this morning Telstra has announced a committee, headed by chairman Donald McGauchie but sans Sol Trujillo, to focus on how best to respond to the Government's NBN plan and its review of telecommunications regulations.
The Coalition insists on labelling the scheme a $43 billion waste of taxpayers’ money, but the Government proposes to put up only a half of that, say $22 billion, has already allocated $4.7 from the previous scheme, and is planning to spread this over eight years. Even if it has to cough up more than $22 billion, why would that be unmanageable over eight years? Turnbull says there is no ‘business case’; the AFR editorial says there is ‘no detailed cost-benefit analysis’. Isn’t preparing that the task of the implementation study announced with the NBN plan? Or have I missed something here?
On the technical side, although some opponents insist there is ‘overwhelming’ opposition, it’s hard to find. As was the case with the GFC, there has been the usual uninformed journalistic comment. They call the NBN a ‘gamble’, but when their tortuous discourse is unravelled it seems as if the gamble is more financial than technical.
Contrary to claims of opposition to the technology, impressive expert support for it is easy to find. Ziggy Switkowski, former chief executive of Telstra, and a fellow of the Australian Academy of Technological Sciences and Engineering is one. Read what he says in an article in The Australian, Trust the power of technology.
Here's a sample of other experts: Michael Malone, managing director of ISP iiNet, has said that the announcement is ‘fantastic news’. "No one expected this. A fully open access network, I can't see any downsides to this. Very high speed access, fully transparent access, separation from wholesale and retail operations...it's like a Christmas list," he says. Malone also says that the Government has ensured the technology used will remain viable even after the network is fully completed after eight years. "I'm quite stunned; but it's a marvellous announcement and Rudd describes it as visionary and nation-building - and he's 100% right." Ovum research director David Kennedy says the network announcement is a definite change in policy, but is ‘a good one’. "The network they're now proposing is a much better technology solution in the long run, and it'll be the backbone of infrastructure for decades to come," he says. He also claims that the Government was right not to invest in wireless technology, as the telecommunications market is driving that industry on its own. Andy Fung, chief executive of VoIP provider MyNetFone says that the announcement is ‘unbelievable’. But Fung says that while the network decision is necessary to upgrade the country's broadband infrastructure, the cost of the network is a concern. Despite his concerns, Fung says that the network will provide ample opportunities for businesses in both creating the infrastructure and its long-term benefits. David Markus, Combo managing director and SmartCompany blogger, says that while fibre-to-the-home connections are welcome, businesses should be connected as well. "Fibre-to-the-home is fantastic, but what are they going to do for business? All the newest technology for business is now in the cloud, and the thing that's holding back Aussie business is lack of access to cloud computing," he says. Markus also says that the Government has ensured the broadband network is a revenue-raiser that will come in handy when the economy recovers. “Once it's in and working, it'll be worth an absolute fortune because it will control the communications of Australia." You can read more in an piece titled Experts say Government has got broadband network technology right.
Highly respected industry analyst and consultant Paul Budde, who has criticized Australian political leaders for allowing Australia to fall so far behind, welcomed the new NBN initiative. He believes that fast broadband is the future.
The problem with some commentators is that they are stuck in the past. As described by communications guru Marshall McLuhan, they are driving by looking in the rear view mirror – looking to the past to understand the future. Super fast broadband of 100 megabits a second opens up possibilities not previously envisaged.
Take education. The proposed NBN will enable virtual classrooms where learners can hear and interact with world experts in any subject, no matter how remote. It will not be just listening to an expert talking with the full range of audiovisual aids, it will be the instantaneous interactivity that will make the difference. The brightest and best teachers will not be confined to their own locale, they will be universally available.
Take medicine. Imagine a family doctor puzzling over an obscure dermatological condition. He can now have a virtual consultation with a remote dermatologist in his own consulting room. The dermatologist can see the skin condition instantly in high definition, talk with the patient, and consult with the family doctor. Any relevant radiological images can be transmitted rapidly with great clarity. In a way this would be a return to the time-honoured process of the specialist and family doctor consulting together in the presence of the patient, a process now almost extinct because of time and traffic constraints.
What about online telephony, so-called VoIP, and online videoconferencing? What enormous advances will NBN provide to business? It will enable much travel to be eliminated as videoconferencing replaces many personal meetings. How much greenhouse reduction will result? What about downloading entertainment in minutes rather than hours? Most of the needed technology is in place; it is fast broadband that will make it work brilliantly.
And what’s more, experts insist that the proposed NBN will be readily upgradable to faster speeds as they become available. So it is not facing obsolescence as time goes by.
Yet the sceptics ask whether the public will be interested and willing to pay, whether business will take it up? Why is there any doubt? When I was a kid I built a wireless crystal set with pocket money. Would I still prefer that to the brilliant plasma screen that gives lifelike images in my living room because the plasma screen costs so much more?
Others oppose NBN on the grounds that as only 30% of the fibre-optic cable will be buried, the rest will have to be suspended from existing poles alongside TV cables. They paint an ugly picture of confetti festooning our telephone poles. Yet how much visual disfigurement of our environment has resulted from cable TV? Has anyone noticed? While underground cabling is preferable for both communications and electricity cables, it’s not fully feasible. We simply can’t have all the technical amenities we demand without some of the drawbacks.
What will the Opposition do?
It’s tragic that the opportunities the NBN offer are so obscured by the sheer bloody-minded politics of opposition. I would have thought that the conservative side of politics, that so values entrepreneurship and innovation, would have been anxious to grasp the new technology that has so much to offer, and to work out how it can be afforded, and just as importantly, if we can afford to pass it up. Even the Australian Financial Review, the businessman’s paper, editorializes against the financial aspects of the NBN plan. Of course fiscal prudence is necessary, but fiscal issues should not be used to put the brakes on progress, rather to lubricate it; what’s needed is oil, not friction. We should echo Barak Obama – Yes we can.
When the aeroplane was first invented an US army general said he could not see any military use for such a thing. Let’s not say the same about the new NBN, or that we can’t afford it.
So what will the Opposition do? What do you think?