Friday, April 15, 2011

Nonsense in communications land

Grahame Lynch, the publisher of Communications Day, has written in the Oz today on the NBN. He opens;

If one can't get one's history right, then one probably can't be trusted to get the future right.

The basis for his assertion that Conroy can't get the history right is that NBN 1.0 was cancelled because "the non-Telstra bids were all rejected because they lacked 'value for money'". But asserts that Conroy never referred to the compensation issue.

Lynch is wrong.

The Minister released an extract of the Expert Panel report with the decision on 7 April 2009. In that, the panel noted a range of reasons why none of the proposals represented value for money, and these included the fact that the development in technology meant FTTN was no longer a cost-effective half-way house to FTTH, that no one really met the coverage requirement and a cost risk that was described as;

As well, providing such access to a party other than Telstra runs a risk of liability to pay compensation to Telstra. The Proposals have this risk remaining with the Commonwealth but they have not addressed the potential cost to the Commonwealth of any such compensation. In any event, the Panel considers that no Proponent could accept the cost risk and continue to have a viable business case.

I suggest Lynch and the "many informed observers" should get better at reading actual documents rather than what they choose to believe.

As for NBN 1.0 being fully costed at $9B, the fact is it was on the assumption that Telstra would participate. After all, why not accept $4.5B in outside investment to replace your access network, retire your class 5 voice switches and expand the broadband market? The only reason you wouldn't would be if you were Sol and Phil.

I actually maintain there were two fundamental errors made by Conroy's Department in the whole exercise.

The first was that they continued the Howard Government approach of thinking the best value was achieved by a contest between Telstra, the G9 and any other bidders. The phrase "competitive tension" was used repeatedly - and even approvingly by the ANAO report. But the "loser" of the tender had to become a customer of the "winner"? That is not the standard for a competitive tender. Actually the Department needed to drive Telstra and the G9 TOGETHER rather than apart.

The second error was the failure to be clear enough that one of the objectives was structural reform. The tender document itself simply listed the extent to which the proposal delivered separation as one of a number of (unweighted) factors that would be used to make the decision. As a consequence Telstra thought they could get it removed as an objective.

The stoush leading to the shortened bid included Telstra effectively demanding that separation be taken off the table before they would bid. They should never have been able to think that was an option. It was the structuring of the tender document and the inability of the Department to really say it was non-negotiable that left Telstra believing it could be achieved.

Phil Burgess on Four Corners talked about Telstra's reluctance to hand over their confidential information;

PHIL BURGESS: Our proposal was real, it wasn't brochure aware, it wasn't just a spin, it was something concrete on which we'd spent hundreds of millions of dollars. We were not going to turn all those plans over to the Government without guarantees. They want us to open the kimono on everything that we had done without any guarantees that our intellectual property would be protected.

STEPHEN CONROY: Well look, Telstra knew what the rules of the tender were. Everybody else supplied thousands of pages of market sensitive information, and Telstra took their decision under their former leadership that they were going to in effect call the government's bluff.

The reality was that Telstra's concern was that the information they would provide would have facilitated the Government's implementation of a separation decision. It wasn't about the IP in the plans themselves, after all that was mostly Alcatel-Lucent's anyway!

Meanwhile lurking in the middle of the whole story was the real policy change no one has noticed. Phil Burgess says of negotiations with the ACCC (in 2007);

Graeme Samuel just arbitrarily marked things off. He didn't base it on studies, he didn't base it on expert opinion. When you have a rogue regulator that doesn't play by the rules, when those kinds of things happen then the taxpayer ends up footing the bill.

The substance of that complaint was that the ACCC would NOT AGREE to Telstra's request that ULL pricing be nationally averaged. Yet a key part of Conroy's NBN policy is a nationally averaged wholesale price. That is the truly amazing policy shift and as yet totally unremarked in the commentary.

Anyhow, taking Lynch's opening line at face value, I now know that he doesn't expect me to put any credence on his forecasts.

Novae Meridianae Demetae Dexter delenda est

1 comment:

Grahame lynch said...

Actually David you completely misunderstand what history I am referring to... It is to the belief that Nbn mark 2 corrects the deficiencies of Nbn mark 1, not the reasons for its cancellation. Please try and read things based on what is said rather than your belief system. Given nbn mark 2 is now 2 years old I believe one is entitled to view it in a historical context. Simple fact... Under nbn mark 1, the copper would have been acquired, under nbn mark 2, telstra gets to keep the ducts, lease them and get paid for not using copper. They are not unhappy about this, ask yourself why.