Wednesday, 15 December 2010 15:02

A perspective on the National Broadband Network (NBN)

By Wayne Fitzsimmons

The ramifications for Australia of implementing its NBN are significant and complex. We have a unique opportunity to give ourselves an international competitive edge that our children and their children will benefit from. We can get it right but we need to have it explained in a form that removes our fears and opens our eyes as to why it is important and important today.

One approach to better comprehend this is to look at four key elements of this high technology infrastructure investment program viz. infrastructure, regulatory environment, technology and economics. To some extent they are all interdependent but in the end it is the pay off for the nation that will justify the means to this end.

1    Infrastructure

According to a recent ANZ Bank report (Infrastructure Oct 2010), the average age of Australia's infrastructure has increased from 15.7 years to 21.1 years. To return to the long term average of 18.6 years will require over $600billion to be invested in this nation's infrastructure over the next 6 years. Investing $43Billion on an NBN over the next 8 years is around 7% of this number; it is significant but not outrageous.

One of the paradoxes of infrastructure is that in the US and in Australia, the desire to introduce the 'free market' element into creating infrastructure, has led to a decline in infrastructure investment. Competition has meant that the various vendors daren't overspend on capital structures for fear they will lose their competitive edge...and they may well be right. However, this means that overall investment in infrastructure is declining and, eventually, our nation's international competitiveness will also decline. I believe the example of Victoria's power generating capability is illustrative of this concept following the 'privatisation' of the 90's under the Kennett government; changes to this equation may be brought about by other 'environmental' considerations in Victoria anyway.

So is it a citizen's right to have 100 Megabits delivered to their house or do we leave it to market forces? In Korea, it has been enshrined in legislation that a basic human right for their citizenry is to have access to 1Megabit/sec internet service. We don't question having a telephone in our house connected to the copper network - that's what the PMG installed in the 40's and 50's whether you wanted it or not. Today we have alternatives but it did take decades to arrive at this scenario.

Conclusion: Although $43B sounds a lot, taken in context of the wealthy nation that Australia is today, this amount may not be enough over the next 8 years in order to retain our international competitiveness.

2    Regulatory environment

We can easily recall the government advertisements for T1, T2 & T3 - a vertically structured carrier like Telstra provides the best of both worlds for customers, wholesale and retail. With the Universal Service Obligation and the monopoly guaranteed, Telstra looked a sure bet for all of us who invested. What we didn't count on was the Howard Government selling down their majority ownership and not forcing any split between wholesale and retail offerings.

The monopolistic behaviour starkly manifested itself in 2008 when the then management (and board) failed to submit a response to the RFT by the newly elected Rudd Labor Government, for a FTTN NBN. In many ways the Rudd Labor Government was left with no alternative other than to create and fund a monopolistic alternative to Telstra then legislate to force Telstra's hand and this is now being played out in our Federal parliament.

Whilst it doesn't add anything to this debate, one must recall that Kim Beasley as Minister responsible for Telecommunications in the Hawke Labor Government, strongly supported the then CEO of Telecom Australia, the late Mel Ward, in not splitting the organisation up when they merged OTC with it; subsequent Labor and Coalition governments failed to grasp this nettle also. So now the ACCC is grappling with the monopolistic issues in relation to the national trade practices legislation and how the number of points of interconnection (PoI) plays in this environment - is it 14, 200 or 400 PoI? No doubt the ACCC has the competence to assess this rather complex issue and get this about right (there is no way they will be able to satisfy all of the players with vested interests in this matter).

This is, however, a crucial decision to create the necessary certainty that underpins the NBN business case.



3    Technology

The communications technology platforms that can deliver the NBN are diverse. They range across
'¢    Copper
'¢    Fibre
'¢    Hybrid Fibre Cable (HFC)
'¢    Wireless
'¢    Satellite
'¢    Symmetric/asymmetric transmission
'¢    And any combination of these platforms.

There have been numerous positions taken in the press by the various interested vendors, as to which is 'best' or 'lowest cost to the nation'. Again there are many trade-offs to be assessed here but we have a company called NBN run by an experienced professional communications engineer and he and his team have the confidence of the government, as well as the obvious competence to make this call. There are plenty of examples around the globe where these platforms have been deployed so I believe we should back their judgement. 

4    Economics

We believe that the NBN business plan is built upon a set of technology platform assumptions that we will shortly know in detail. This is almost entirely a financial assessment of the ROI and does not address the cost/benefit analysis that the opposition and many others are calling for. The non-financial gains are significant and should and need to be quantified.

CSIRO recently held a conference in Hobart ('Broadband Society Summit') in which this very topic was debated by experts. It was pointed out that broadband is already planned to be provided to most schools around the nation - to not allow students (and parents) access to their schools from home with the same facilities and capabilities is short-sighted in the extreme. There are many Australians well qualified to comment upon and offer considered views on this subject.

We must not look backwards and support arguments such as 'who needs 100Mbits/sec anyway' and 'no consideration has been given to the costs to the household to wire up for this new technology'. There needs to be constructive explanations offered to the naysayers by pointing out such things as that when cable TV arrived there was little quibbling about the cost to articulate the HFC cable inside the home.

The cost of home wiring for 100 Mbits/sec is not, and will not be, the blocking economic consideration. However, there is no denying that contemporary educated Australians rightfully expect their politicians to justify rationally how large sums of taxpayers contributions (and $ 43 Billion is substantial by any measure) will be spent on an infrastructure that embraces leading edge technology that most of us do not understand (and whose lifetime at the leading edge could be short).

Some infrastructure projects provide such obvious common good they garner broad community support without question ie the community 'gets it'. I refer to things like new dams, grey water reticulation in new communities and the like. But, it appears that the NBN is not one that passes this test of believability ie 'trust me' statements from the Minister are not enough. It does and will require serious effort by informed experts to report on the social and community benefits we are likely to see - this needs to be done before mid 2011. Areas such as health care/telemedicine, education, intelligent transport systems and the like will emerge as practical applications for the nation.

In the US there are similar debates being had, as the nation has recognised they have massively underinvested in Telecommunications infrastructure. However, with the new arrangements in the House of Representatives post the November 2010 elections there, it is unlikely there will be any government 'intervention' as we are seeing here. Unfortunately there are no other new world countries with similar geographies to ours, to which we can look to for analogous situations and supportive answers.

Also there are latent questions remaining unanswered. If $43 Billion is the right number, how does it take priority over road and rail public investments, public health infrastructure and so on? It is my opinion that the NBN is a prerequisite for these investments to occur and therefore the NBN needs to be at the top of the list. Another economic argument runs that the nation should stage the investment in terms of the basic speed of the platform eg roll out 20 Mbits/sec now, not 100 Mbits/sec - get to 100Mbits/sec in 10 years time. Again, the NBN Co. has the expertise to make this call and has done so; but that is no reason why the question should not be answered by NBN Co.

Underpinning all of this is that the NBN at 100Mbits/sec will facilitate a new generation of applications on a new platform. Just as the iPhone has triggered hundreds of thousands of new applications on a platform that did not exist three years ago, so the NBN will facilitate major new companies and programs that may well be extensions of existing approaches and/or new approaches to old problems. The latencies associated with a NBN allow a whole new approach to using existing computing power more effectively. This must and will lead to improved productivity.

Some are calling for the Productivity Commission to research the new applications that might be possible and measure their economic impact. I would go further in supporting this move and assert that this exercise is so significant that we need to establish an economic research group that can measure and track progress as the roll out occurs. Plans for establishing such a studies group within our academic institutions have been around for several years.

Let's get on with it!

Wayne Fitzsimmons is Chairman of the Pearcey Foundation, established in 1998 to celebrate the heroes in the ICT sector (www.pearcey.org.au ). The Foundation is named after Dr Trevor Pearcey who led the team that designed the world's fourth programmable digital computer, CSIRAC, now housed in the Melbourne Museum. Wayne is also Director of MGroup, a Melbourne based boutique private investment company and holds board positions in half a dozen early stage Australian ICT companies.

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