Broadband reaction
Business Spectator's Isabelle Oderberg and Tony Boyd gauge the reaction to the government's national broadband network (NBN) plan.
Senator Nick Minchin, shadow minister for broadband, communications and the digital economy
IO: Do you want to just give me your initial reaction to the announcement this morning?
Nick Minchin: Well, this is a breathtaking admission of complete policy failure on the part of the Labor government. Their 2007 broadband promise which was a direct steal from Telstra’s 2005 broadband proposal has blown up in its face. After 18 months and $20 million and Senator Conroy’s department humiliating him by ruling Telstra out, we end up back where we started. The government’s going to have to start all over again and on the basis that this policy’s failed because they couldn’t get the private sector to raise the $5 billion needed for its 2007 idea, but now they want to have us believe that the private sector will raise $20 billion for its 2009 idea.
IO: So is your key concern the funding aspect of the proposal?
NM: Well, we don’t believe this is either a sensible, responsible use of taxpayers’ money and nor are we convinced that this thing could possibly be commercially viable. To spend $43 billion rolling out a fibre to the premises network can only be commercially viable if you can generate the requisite demand for the service and generate, you know, a substantial return on that investment. That is high risk, particularly given that this is going to take at least 8 to 10 years from now to complete before the service is fully available.
The advances in other forms of broadband internet are rapidly advancing. There’ll be competition from mobile wireless, fixed wireless, satellite, HFC cable, Telstra’s existing network, so there are substantial risks to the commercial viability of this proposal. So, we doubt very much that you will get the requisite private sector investment and nor do we believe it’s responsible to put so much taxpayers’ money at risk in such a venture.
IO: The plan had quite a positive reception, including from the bidders themselves.
NM: Well, they’re all mightily relieved that for some time to come it’s business as usual. Telstra will be mightily relieved that they can just get on with business and there’s no competing network or any attempt to fracture their existing network. The internet service providers can just get on with business supplying broadband through their ADSL2+ services on the existing network. So, I think there’s a great sigh of relief in the telecommunications industry because the government’s shambolic attempt to intervene in the current market place has come to naught and any future intervention is years and years away if ever. So, I think most people are relieved that they can just get on with business.
IO: If you were going to present a plan for a national broadband network, what would it look like?
NM: Well, we have a national broadband network currently.
IO: A new national broadband network then?
NM: Well, Australians obviously will always – whatever speed they get – they’ll want more. We always want more of everything. We believe from a government point of view, the priority for putting taxpayers’ money on the table should go where there is market failure; that is in the non-metropolitan parts of Australia which are unserved or under-served. That’s why we signed a contract with Optus and Elders in 2007 which this government recklessly and irresponsibly cancelled. That contract should be reinstated and broadband services rolled out to rural and regional Australia with Government subsidy to make up for what is obviously a market failure.
And in terms of metropolitan Australia, we already have a national network company and it’s called Telstra and the government should be working with Telstra to determine the best way to provide the incentives required for them to upgrade their service as quickly as possible. We are just going to waste years and years and spend billions and billions of dollars potentially on Labor’s building another new network company. It doesn’t make any sense whatsoever.
IO: Do you think that the regulatory review is justified?
NM: Well, we certainly believe that the regulatory arrangements which currently are in place should be reviewed. They were put in place by our government back in 1997, you know 12 years ago, so yes they should be reviewed. They should be reviewed with a view to encouraging both investment in infrastructure and to see what extent the current regulatory arrangements actually inhibit investment and they should be reviewed on the basis of maximising competition in the delivery of services to reduce prices to customers.
IO: And do you think that the system designed to regulate and control Telstra is ineffective?
NM: Well, I mean there are two things with Telstra. You want to provide as much incentive as you can for them to invest in their network and upgrade their services, but to do so on the basis that there is the requisite retail competition and services competition that delivers lower prices. I mean we’re seeing this of course with mobile. We’ve learned today that basic mobile broadband prices have halved in the last 12 months and there’s been a commensurate jump in demand. That’s what we want to see in fixed line and I think that’s possible, but it requires regulatory adjustment to achieve both greater investment and competition in services that reduces prices.
Michael Egan, chairman of the Terria bid consortium that includes Optus, iinet, Internode, Macquarie Telecom and Primus Telecom
Isabelle Oderberg: Can I ask your reaction to the NBN announcement?
Michael Egan: It is a fantastic announcement. A real nation-building announcement and a critical piece of major micro-economic reform. It will mean a very competitive telecommunications and media industry in Australia. It will be great for consumers. It will be great for competition in the industry.
I’ve only seen the headlines so far, but the headlines indicate that it is a very big, bold, nation-building decision.
IO: What do you think the reaction will be from other key players in this whole saga – Telstra, Acacia? Acacia was supposedly in the lead to win the tender. Do you think there will be a bit of sour grapes?
ME: Well I can’t speak for Telstra or Acacia. The key issue all along was to make sure that the model was right so that Australia had a competitive telecommunications industry and I think from the headlines I’ve seen so far, that’s what we’re going to have, bigger and bolder than any of us thought.
IO: What does it mean for the end user, sitting at home wondering what this all means for them?
ME: Well, the end user is going to have access to telecommunications and internet services that will be second to none in the whole, wide world.
IO: How important is the announcement regarding fibre-to-the-home?
ME: Oh absolutely – fibre to the home was going to come anyway, but the fact that the government has now extended the initial broadband roll-out to fibre to the home or fibre to the premise is just fantastic news for Australia.
IO: Do you think the government is going to have trouble getting funding for this project? It’s being raised as one possible issue.
ME: I shouldn’t think so. I don’t think it will be a problem.
IO: Given that it won’t be a completely private enterprise, do you think it can be competitive?
ME: Absolutely. It is a natural monopoly and that means that there’ll be a level playing field, both downstream and upstream, so in the retail side of things, or in the media and content side of things, there will be now ferocious competition and all sorts of innovation.
Rosemary Sinclair, managing director of the Australian Telecommunications Users Group
Isabelle Oderberg: What do you think of the plan?
Rosemary Sinclair: We think it’s great. We think it’s great. Quite unexpected, but really a much better solution than fibre to the node. This is… It’s really the end game. It’s future proofing Australia’s communications network, so we’re really pleased about it.
IO: Do you think that given it’s not going to be a completely private enterprise that the Government will be able to execute it and do it well?
RS: Look, I think so. What they’re putting forward is a government public private partnership 51/49 per cent, initially. They were talking this morning about selling down their interests in five years, looking at that sort of time-frame, using the $4.7 billion as the initial investment and then looking at Aussie Infrastructure Bonds to build their stake. So, I think it is executable, because to me they’re thinking of it as a utility type asset. I think the good news story for financial markets is probably a very certain regulated rate of return, but with the option over time for the Government to exit and for private interests to come in. I think it’s doable.
IO: How do you think that this will be regulated? I mean obviously it’s going to be quite a regulatory change here.
RS: Yes. Yes. This is going to be Australia’s really first experience of a structurally separated born wholesale network, so I think there are going to be new regulatory arrangements around this network which are different from the existing arrangements and take us really into a new era of equivalence of access, non discriminatory pricing and service arrangements, a different role or different mechanism in terms of setting the price of access, a role for the ACCC, so I think it’s going to be new and different, but really very good. I think it will be, you know, quite a boost for competition in telecommunications.
IO: Do you think that this is quite a bold and brave move for the government?
RS: I do. I do. Audacious is the word that I’ve been using, you know, in my own thoughts about it. It is audacious, but when you go through the pieces of it, very well thought out and I think it’s eminently executable with a government that is quite determined it seems to me to create a competitive structure in the telco market. That seems to me to be the driving force behind the regulatory side of it and the driving force behind the fibre to the node initiative is to give Australia the sort of communications network that we need for the next generation of productivity benefits from ICT, so I think they’re quite clearly focused on doing those two things at the same time.
IO: And what kind of role do you think that the failed bidders and in one case not even a bidder, but a sort of a participant if that’s what you can call it, will play from here on in?
RS: You mean Telstra, Isabelle?
IO: I mean the bidders being obviously Terria, Acacia and Axia and then the not quite bidder, but sort of participant.
RS: Yes. Well look, I would think that in amongst all of this is a regional wholesale fibre, back hall network, and that really sounds to me very much like Axia. The Acacia bid seemed to me to be a very credible and well thought out bid as did the Optus bid. So, I would see those companies as really being in the box seat to partner with the Government as the private sector participants in the national broadband network company.
So, I see opportunities for all of those bidders. For Telstra, they are a great Australian company, they will be left with their copper network, they’ve got other options that they promote very vigorously, so I think that they’ll have ways of competing in this market, but what us end users will actually get is a robustly competitive telecoms market right at a time when that’s what we need to grow small business, for big business to be productive, for health and education and all the Government agencies that I can think of. It’s really time for those folks to transform the way they interact with the community, but they need good fast broadband to do it and they need good fast broadband plus competition and choice and that’s what we’ve got. ATUG’s been on about this, Isabelle, for almost 30 years, so if I sound a bit surprised that we’ve actually got there, that’s why. [Laughter]
IO: That’s a lovely note to end on, Rosemary. Thanks for your time.
Paul Fletcher, telecommunications consultant and former head of regulatory affairs for Optus
Tony Boyd: Paul, today’s announcement took some people by surprise, but what’s your take on it? Is this really positive for the country?
Paul Fletcher: Well, I think that first of all it definitely involves addressing the market structure issues which have bedevilled broadband in Australia for many years, so if the Government’s proposing to build a brand new network that will effectively bypass the Telstra network and therefore address the issue of market dominance. So, I think that is certainly a very significant development and if the plans are realised, a very positive one. The decision to go fibre to the home rather than fibre to the node is obviously a significant one and it is the main factor behind the substantial increase in cost. So, previously people have been talking about a $15 billion network, it now seems the new network will cost $43 billion and a big driver of that cost increase is the upgrade to fibre to the home.
TB: Telstra’s share price went up, I think at one stage, 5 per cent, so the share market investors or analysts are taking this positively. Do you think that’s the way to perceive it?
PF: Yeah. Well, in the short term I think that’s probably a reaction to, at least now, a little bit of certainty about the direction because there’s been a lot of speculation about what might happen. Having said that, I think in the longer term it’s hard to see it as a positive for Telstra from the perspective of Telstra shareholders because Telstra’s mere monopoly in the local loop has been the source of much of its profit and revenue and they are now facing the prospect of a government owned company having a competing network connecting to every one of their customers and that I think is hard to see as good news for Telstra.
TB: Yeah. I mean one way of looking at is that we’re back to square one; the whole NBN RFP has been abandoned. Is Telstra now in a position to negotiate a way back into perhaps even owning part of the government network?
PF: Well, the government has said that it will prevent any one retail telco having control of this new company and it’s also said that the Government will be a majority owner of the company for at least the first few years, so yes certainly Telstra can get involved with it because theoretically presumably own 49.9 per cent, but it’s not going to be in the same position as it is today where it is the vertically integrated owner of the dominant broadband network and all of its competitors effectively have to use that network to serve customers.
So, yes Telstra can certainly have a role here, but the market structure that results, it seems to me, is going to be much more competitive. I think the real question that this announcement raises is from the point of view of investors in the Government owned network; that is will there be substantial private sector interest in it and I would imagine that private sector investors would number one would want to know what level of demand is there going to be for this network, what level of traffic will there be over this network because that will determine the revenues generated from the network and in turn the capacity to generate the required return on capital.
TB: So it seems it’s almost as if the success of this government-owned network is dependent upon getting as many customers as possible off the Telstra network.
PF: I think that’s absolutely right and if you look at the recent history of telecoms in Australia, and I looked at some of this in my book “Wired Brown Land” [published this week], we of course had the episode in the mid ‘90s where Optus announced it was going to build the hybrid fibre coax network and Telstra then came along and built a duplicate network and the Optus network certainly has never been a financial success because it has been unable to attract the penetration required. It’s got up to about 40 per cent penetration, but that’s really not enough.
So, the lesson from that period seems to be that if you have two competing networks, it’s going to be hard for both of them to generate acceptable returns. That’s really been a nub of one of the problems with telecommunications policy in Australia and that I think remains a big open question with this new approach. Will there be enough traffic to ride over both the Telstra network which will presumably continue to operate and now this new government owned network?
TB: Thanks a lot, Paul.
PF: It’s a pleasure, Tony.
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