Thursday, February 24, 2011

The Turnbull assault

Malcolm Turnbull is both too intelligent and too knowledgeable to be making his attacks on the NBN from anything other than base political motives. In doing so he risks repeating his experience with Utegate - seeking to land a killer blow without substance.

In a twin assault he has appeared on Lateline and contributed a column to today's SMH.

His assault rests on a number of pillars. The first is the idea that our broadband future should be "multi-platform", and in particular that we shouldn't "trash infrastructure that works". The second is that the speed goals of the NBN are over ambitious, we don't need 100 Mbps everywhere. His third is that the wireless platform will take share and damage the numbers in the business plan.

The reality is that existing delivery is barely "multi-platform". The varieties of fixed broadband in Australia are all either using the single copper network of Telstra, one of the Hybrid Fibre Coax networks of Telstra or Optus or a few smaller regional plays. Outside of that there is a smattering of fixed wireless, a growing additional usage of mobile wireless and satellite in regional areas.

The NBN plan really only addresses two of those pieces of infrastructure, building an FTTH network to 93% of premises. But the original idea didn't come from Government, it came from the owner of the dominant fixed network.

Turnbull's other claim to fame is as an early owner of Ozemail. When he ran the business it was providing e-mail and internet access through banks of 300 bps modems. At the point of sale I think they were just progressing through the 14 kbps stage. I wonder if then he expected that by today users would barely be happy in the 1 to 10 Mbps range. The compelling graph that NBN Co uses (below) really puts the onus of proof onto others to say why the trend won't continue than on NBN proponents of having to name the future applications.

In November 2003 Telstra's Tony Warren told Senate Estimates;

I think it is right to suggest that ADSL is an interim technology. It is probably the last sweating, if you like, of the old copper network assets. In copper years, if you like, we are at a sort of transition—we are at five minutes to midnight. There is quite a long delay in lead times on all this—

Bill Scales and he further explained;

The only point of clarification, just so that there is no misunderstanding, is that when we think about the copper network we are still thinking about 10 years out. So five minutes to midnight, in this context— (Doesn’t mean five years.) It does not. It could be 10 or even 15 years, just to get some context into that....

Telstra went one stage further and in July 2005 presented to Prime Minister Howard, Comms Minister Coonan and Finance Minister Minchin their The Digital Compact and National Broadband plan. This was a plan for a "Fibre to the Node" network, the price for which was a regulatory reform to wind back the access regime and install a commercial monopoly.

The then coalition Government thankfully rejected the approach - though perhaps more because Telstra noted "We are aware that our request to reopen the discussion of the regulatory environment that surrounds the Telecoms industry (not just Telstra) has potential downsides - including a possible decision not to proceed with the T3 sale." (emphasis added)

The response of the rest of industry to propose a co-operative approach - the G9 which became Terria - gave the coalition an alternative. They set up a two part process - effectively a tender for the policy for an FTTN component and a tender for a regional (wireless component). They got so far as awarding the OPEL contract (despite knowing that OPEL could not meet the conditions precedent in the contract). An election intervened and it was left to Labor to euthanise OPEL.

When the NBN Expert Panel reviewed proposals in 2008 time had moved on. No longer did building an FTTN look like a cost effective migration to an eventual FTTP network - it looked wasteful. The plan was recut to NBN 2.0.

So the idea to "trash" existing infrastructure came from the owner of that infrastructure who has signalled that it can't last and that the competition policy model of the past could not sustain its commercial replacement.

Turnbull also hankers for some kind of mystical multi-platform multi-provider model. He spent enough time (and made enough money) as a merchant banker advising players as first Australis went under and secondly Optus wrote off most of their HFC investment and dissolved Optus Vision.

A definition of insanity is to do the same thing expecting a different result. I've never thought Turnbull was insane, but the comments about multiple platforms suggest it.

When Turnbull owned Ozemail he sold internet and e-mail services using banks of 300 bps modems. When he sold I think they's started using about 14 kbps as well. I don't know if back then he thought that users would now expect 1 to 10 Mbps. If he did I'm sure he couldn't have told you what applications people would use.

NBN Co uses a Fibre to the Home Council graph of the exponential growth in speeds (below). The onus is on those who believe the trend will change to say why it will change, not on those who believe the trend will continue to say why it will.

Finally he is caught between either believing that the NBN could “could forestall the development of, as yet unknown, superior technological alternatives” or of telling us that the NBN business case suffers from the understatement of the proportion of "wireless only" homes. This one is really tough. You will not find a technologist who won't tell you that the fastest speeds will be through fibre and that the passive splitting approach supports all the likely upgrades for the next twenty to thirty years.

The Telstra and Optus position is that wireless is only a complement to fibre. They don't have enough spectrum for forecast demand as it is and their strategies in the future will be femto-cells at home to offload traffic. Yes there is some uncertainty about the future, which is even more reason why the investment needs to be made by Government.

PS Related but different point. Nick Xenophon wants the Feds to insist the States take out flood insurance. Apart from the fact that no one offers flood insurance for roads and that the premiums specifically on offer to Qld were too high (see Q&A Monday), to pay for insurance means paying to a commercial enterprise (the insurer) a profit margin for accepting the risk. For the events that we are talking about insurers themselves aren't even safe - think HIH and Hurricane Andrew. Government is an instrument for managing risk. Use it.

Novae Meridianae Demetae Dexter delenda est

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