Monday, 20 July 2020 06:23

Selling NBN Co as a monopoly would be the definition of insanity, says network guru Featured

Gary McLaren: "On many days, I felt as though the politicians were vying for my job, rather than who should set the policy for improving Australia's lagging broadband performance." Gary McLaren: "On many days, I felt as though the politicians were vying for my job, rather than who should set the policy for improving Australia's lagging broadband performance." Supplied

Selling the NBN Co to a private entity as a monopoly would be the worst way to ensure that the network is upgraded, a network expert says, adding that if the definition of insanity is to do the same thing repeatedly and expect different results, then privatising NBN Co as a monopoly would definitely qualify.

Gary McLaren, former chief technology officer of NBN Co, offered this view after he was invited by iTWire to give his opinion on the future of the NBN. iTWire has been running a series of articles on this topic since the middle of June, with renowned telco analyst Paul Budde, TransACT builder Robin Eckermann, Labor NBN adviser Rod Tucker and RMIT network expert Mark Gregory offering their takes on how they think things should pan out.

McLaren said selling NBN Co as a monopoly would bring about the same result as was seen when Telstra was privatised. "After much to-ing and fro-ing the rent-seeking monopolists would only invest in upgrades if the government provided the funding (remember Sol Trujillo's regular trips to Canberra?). It would be the worst of all possible outcomes," he said.

And reasoning on from this, he said if Australia could not craft a path out of its fixed broadband monopoly dilemma, then the best solution would be to keep NBN Co as a state-owned company. "Better to have the government accountable for the cost and profits rather than let Australian private sector establish yet another private monopoly," he commented.

He pointed out that the entire political debate over the NBN had always been framed as one which argued about the kind of technology that should be deployed. "No other political debate, perhaps with the possible exception of climate change, has seen politicians get into such a detailed debate about something they have little or no expertise in," he said.

"On many days, I felt as though the politicians were vying for my job, rather than who should set the policy for improving Australia's lagging broadband performance."

As to the reason for what he called a "peculiar state of affairs", McLaren said it was because all parties - Labor. Liberal and National - had erroneously concluded that fixed broadband just had to be a natural monopoly.

"Most other markets (Western, Asian and others) have been able to move from the entrenched monopolies of the fixed telephony era to structures where competition between technologies (ie. VDSL, HFC, GPON and mobile) has driven investment in higher speed broadband networks in urban areas," he explained.

"Some markets (such as New Zealand and Singapore) have reverted to monopoly structures for deployment of national fibre networks - but none have done this for the less capable VDSL and HFC technologies.

"Australia has been unique in keeping a monopoly in place through the long transition from the 20th century copper networks to the 21st century fibre network future. Competition between the different fixed broadband technologies has not been part of the policy framework. As a result, politicians have been asked to adjudicate on complex engineering and economic decisions."

The reason why all parties aligned on this had intrigued him. "The best [reason] I can come up with is that each party's traditional support base has a vested interest in extracting the inherent extra profits (or rents) of the telecom monopoly," he said.

"The Liberals, as the party of business, have an incentive to orchestrate the privatisation of the monopoly as we have seen with the tortured privatisation of Telstra. The Nationals, as the party of rural and remote interests, have an incentive to see a (hidden) cross-subsidy within the monopoly be directed to more infrastructure for the bush.

"Labor, as the party of trade unions, has seen fit to have a state-owned monopoly that supports a unionised workforce that would have an advantage in directing the rents towards workers in the industry."

McLaren said that even though the Coalition had criticised Labor's idea of an NBN Co being a monopoly, "once in power, the Liberal's criticism of Labor's monopoly policy quickly faded. Undoubtedly, a factor in this was TPG Telecom's immediately announced plans to roll out a competing VDSL FttB network to about 500,000 inner city apartments.

"This move by TPG Telecom highlighted the susceptibility of the Coalition's NBN plan to increased competition, in contrast to Labor's FttP [plan which had] more robust natural monopoly characteristics.

"Rather than embrace competition as they had done in Opposition, the Liberal policy was quickly redirected towards protecting the monopoly as espoused by the new chairman, Ziggy Switkowski.

"A range of regulations and a new levy were quickly announced along with new regulations imposed by the ACCC (normally pro-competition, but a compliant part of both Labor and Liberal monopoly structures during the NBN era) requiring incumbent style open access regulations on all new broadband networks."

Unlike some technology enthusiasts, McLaren was not sold on the NBN having an all-fibre future. "While fibre is technically ideal, it is not likely to be economically practical for all Australians," he pointed out.

"After all, the copper network didn't reach all Australians either. With technical advances in wireless communications (terrestrial and satellite), we can expect ongoing improvements that can be brought to market by companies with the right incentives.

"I do expect the FttN and HFC networks to be progressively upgraded so that fibre is within at least 100 metres of most premises in their footprints. It is most important that we have an efficient investment regime that ensures just-in-time upgrades to meet the increasing data demands of our society. Building a one-size-fits-all network may, in fact, end up wasting a lot of resources which could be better used elsewhere."

One radical idea that McLaren dredged up from the past was the splitting up of NBN Co into technology-based operating units, something he described as the "most significant way" in which the network could be restructured to promote competition.

"This was suggested by the Vertigan inquiry that was put in place by the Coalition in 2014," he said. "However, the Coalition Government ruled out disaggregation at the time and instead doubled down on the NBN Co monopoly."

He proposed four separate units, with different managements (see graphic below): NBN_FttX which covers FttP, FttC and FttN as they all have a common technology end-point; NBN_Wireless which covers fixed wireless and satellite; NBN_HFC for HFC; and NBN_Core which would cover the core network elements that mainly rely on Telstra's underlying assets. The last named would also provide a common interface for retail service providers at the PoIs and associated IT system interfaces.

Under this scenario, each of these access units would be able to extend and access their networks. "Significant overlaps exist between the NBN_FttX and both the NBN_HFC and NBN_Wireless networks, enabling increasing competition to drive investment," McLaren noted.

He said progressive stages of privatisation should raise capital for investment in expansion and upgrading of the access networks. "[The] government's share of each unit would progressively decline, but maybe at different rates. NBN_Wireless  would require a subsidy which may necessitate government retaining more control over the operations and direction of this entity," he added.

The NBN_Core unit could be merged with Telstra's InfraCo if a suitable arrangement could be worked out, given the large commercial payments tied up with the lease of ducts, dark fibre and exchange space from Telstra. "This disaggregation of NBN Co needs to be planned and managed, to ensure existing relationship with retail service providers and customers can be transitioned to the new arrangements," McLaren said.

"Opportunities for efficient use of new fibre infrastructure investment to service both fixed and mobile (ie. 5G) requirements should be encouraged by allowing mobile operators to participate in progressive privatisation of the NBN access companies. However, privatisation of the NBN Co entities needs to be managed in a way to ensure none of the retail service providers can re-create a monopoly and dominate the NBN eco-system through the application of normal competition law."

Asked to provide an estimate for the network upgrade, McLaren said given that FttN and HFC connections would require the most investment to bring fibre within the last 100 metres - between $1000 and $1500 - the upgrade would likely cost between $7 billion and $11 billion.

He disagreed with those who advocated that the NBN should be managed in the same way as New Zealand. "In New Zealand, there are four wholesale-only operators who have been subsidised by the government to build FttP networks in separate defined geographies. In order to participate in the subsidy scheme, Telecom New Zealand was required to separate its network business from its retail business and create Chorus," he explained.

"These subsidised operators are not protected monopolies - they still face competition from new entrants, Chorus' older FttN network and, potentially, from each other through expanded network builds.

"Would this work in Australia? It may have at the beginning of the NBN era if some non-Telstra companies had been available to create FttP network build momentum and threaten Telstra enough so that it voluntarily separated like Telecom New Zealand.

"However, with NBN Co now dominating the market with regulatory protections against competition, the subsidies necessary to force upgrades to FttP would be very high. The only competitive threat would be from mobile operators offering fixed wireless broadband services. This is unlikely to be sufficient to stimulate widespread upgrades of the NBN with deeper fibre networks."

The full version of Gary McLaren's answers to iTWire's questions is published on his blog.

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Sam Varghese

Sam Varghese has been writing for iTWire since 2006, a year after the site came into existence. For nearly a decade thereafter, he wrote mostly about free and open source software, based on his own use of this genre of software. Since May 2016, he has been writing across many areas of technology. He has been a journalist for nearly 40 years in India (Indian Express and Deccan Herald), the UAE (Khaleej Times) and Australia (Daily Commercial News (now defunct) and The Age). His personal blog is titled Irregular Expression.

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