NBN Confusion

The coalition doesn't like the NBN - we know that. Malcolm Turnbull, Paul Fletcher and Barnaby Joyce go on about it.

But coalition backbenchers don't like the NBN - because residents don't know when they are getting it. Government backbenchers have also been known to complain about the inadequate roll-out schedule.

The public in general really wonders if the coalition can "stop the NBN." There is no evidence Telstra would have an appetite for negotiating a different deal. There is no evidence a structurally separated copper business could raise any capital in private markets for an FTTN upgrade.

But more significantly, like climate change, everyone wonders whether the coalition could get any enabling legislation through.

The biggest difference between Paul Keating winning the 1993 election against Fightback and Beazley losing the 98 election against the GST was that Keating promised to support ANY Fightback legislation if he lost. Beazley promised to oppose the GST. The people voted strategically in 98 to keep Howard and against the GST - which worked until Meg Lees ratted.

The ALP should go to the next election saying it will oppose legislation to change the carbon tax, because the coalition doesn't believe in any action. They should however say they will support any change the coalition wants to make on broadband policy because Mr Abbott and Mr Turnbull claim to be supportive of the intent.

That would make the issue of cancelling the NBN very very real for many people....maybe enough to make a difference.


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Cities

The Australian Government released its State of Australian Cities 2011 report today.

Despite the comment that;

Analysis shows a strong positive correlation between cities with robust information and communications technology and strong intellectual assets.

The word "broadband" seems to only appear twice in the report, both times in reference to a ranking of Sydney in a PWC report.

What hope is there for public understanding of the importance of broadband if in can receive such scant treatment in a 257 page report issued by the Department of Infrastructure?

I think this reflects the comment I made way back in May that the Government as a whole doesn't seem to get the whole Digital Economy thing.....

(Note. I'm happy to be corrected if I've misrepresented the report. I did rely on a simple search for the word "broadband").

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Cultural Policy

In a two-part item on cultural policy on The Conversation, Stuart Cunningham first outlines the contribution of the cultural sector to the economy, including jobs, and then introduces a Culture Consumption Price Index (CCPI)

The introduction to the National Cultural Policy discussion paper says;

The arts and creative industries are fundamental to Australia’s identity as a
society and nation, and increasingly to our success as a national economy.

We could first spend some time distinguishing between "Culture" and "culture". The latter represents all the various common behaviours, language, idioms and imagery of the society. The former is a formal representation of these in a specific form. The former play an important role in reflecting and creating the latter and are an important part of their diffusion throughout the community.

So "Culture" matters because of the role it plays in establishing "culture" - our social norms.

But it also matters economically. Firstly, citizens do pay to access Culture - and one issue is whether that is imported or locally produced, or indeed exported.

Discussion of the economics of Culture often leave people bemused who think that "economic production" is about the material essentials of life; food, housing etc. However the most salient observation of market theory is that markets develop anywhere and are driven by the consumption preferences of individuals. People do want to spend their money on Culture, and given that fact it is just as important that the activity occurs "efficient;y" as any other activity.

In brief disparaging high-speed broadband because one of its uses is the consumption of Cultural elements reflects a lack of understanding about the subject of economic inquiry.

The CCPI then provides evidence of significant disparity between regional areas. That is not surprising. The item in The Conversation doesn't link to the actual study, but having found it more information on the six goods in the basket can be found.

The study notes;

This constrains the basket to appear simplistic at first, seemingly missing
the texture and the fullness of contemporary cultural consumption possibilities.
But a good index is a simple index of as few items as is defensible, with their
criteria for inclusion being representativeness in cost structure.


The six goods listed are;

((1) mass culture (blockbuster movie); (2) high culture
(theatre); (3) family culture (library); (4) cultural learning (music lesson); (5)
social interactive culture (festival); and (6) home culture (music download).
While there are many other aspects we may have sought to include, we maintain
that these six dimensions capture a significant range of variation in the full cost
of cultural consumption in Australia.

The methodology of the price index construction includes direct cost and opportunity cost of time involved to travel to a cinema, theatre etc. It is hard to understand from that the assertion made that;

And Minister Simon Crean has dubbed the NBN “the most important piece of cultural infrastructure Australia has ever seen”.

One of the most important dimensions of the NBN – one that differentiates it from almost all other fast broadband plans – is the symmetry it offers between download and upload capability.

Regional Australia will enjoy much faster downloads (cultural consumption will be easier and cheaper), but there will also be huge new potential for cultural participation, exchange and profiling.

A snippet of that potential includes hyperlocal journalism providing coverage lost through broadcasting aggregation, hundreds of regional museums displaying their wares across the nation and new businesses made viable by the access provided by fast broadband.

Very few of these factors would actually change the CCPI. They don't reduce the travel costs of the mass cultural items, and possibly only a music lesson benefits from improved uplink speed (real two-way video conferencing).

An interesting dimension would be to add to cultural policy things like a "virtual cinema" which streams first release movies but can only be received by households in areas defined to be outside the catchment of real cinemas actually showing the film. The same could be constructed for broadcasting of live theatre production to remote areas.

It is a pity that such a good piece of empirical work (the CCPI) has been mis-used by simply making assertions. The NBN is an enabler for reducing regional cultural disadvantage, but it requires other policy developments as well.

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Is it weird?

Four resolutions were voted on at the Telstra AGM; the NBN transaction, the re-appointment of the Chair and another Director and the remuneration report.

99.45% supported the NBN agreements. Is it weird that it received the biggest majority of the four votes?

As the Telstra meeting was going on the Prime Minister announced the release by NBNCo of the twelve month schedule.

Was it weird that the Government blurred the message? By waiting a day it could have been messaged as either "good news we can release the schedule with more confidence the agreement with Telstra will come into effect" or, if the result had been bad, "we continue regardless."

Was it also weird that the Prime Minister announced anything? This is NBN Co's schedule, it is their job to do it. The Government should be not politicising the schedule so much - save its moment to stand in the sunshine when there are more services and an election is looming.

I've also said before that the PM has got to stop wanting to announce everything. Let Ministers announce without her. Maybe even go back to the Whitlam-esque once weekly press conference and do a weekly sweep of "all the good things our Government ids doing" - build the image of a team of achieving Ministers.

So I think the answer to all of the above is - yes it is weird.

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Telstra AFR

Very pleased with my first ever Op Ed piece run in the AFR this morning. (Behind paywall).

As 99% of proxies voted for the resolution it didn't really matter, but it was important to inject a dose of reality into the conversation given the politically motivated campaign to derail the deal.

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Thinking out loud

We've been told that the joint NBN Committee is going to hear from New Zealand so that;

The conversations are hoped to settle an ongoing argument from shadow communications minister Malcolm Turnbull that a fibre-to-the-node rollout would cost a quarter or a third of the $27 billion headline currently set for government contributions to the NBN.

I am a little bemused by the claim, and indeed how it relates to Turnbull's other claim that FTTN is a good interim technology, again because New Zealand has done it.

The New Zealand government has committed $1.5B to be a co-investor in delivering FTTH to 75% of premises. They are funding half and as the Government investor intend to accept a lower return than the private investors. I haven't seen the rest of the detail.

The population of New Zealand is roughly one fifth of Australia's, and the coverage of 75% is roughly 80% of our target. The $NZ3B investment for the coverage equates to about $NZ18.5B for the Australian FTTH coverage. Allowing for a 1.2 exchange rate we can tweak that back to $15.4B.

But we aren't doing apples for apples. The $26B of Government funding in Australia funds $43B investment in the NBN (P.365 of the implementation study). Not all the $43B funds the fibre build - in fact the breakdown from the implementation study is shown below.

At the simplest we can say one eighth of the total cost funds the satellite and fibre solution, so that means the Govt funding for the fibre part is seven-eighths of $26B, or $22.3.

But so far we've assumed that servicing 75% of premises would cost the same per premise as 93%. The implementation study conveniently provided a chart relating cost to penetration, below.

A generous interpretation is $2000 per premise for the first 75% and $5000 per premise for the additional 18%. That comes to the cost of the first 75% being 62.5% of the total fibre cost.

Or stated another way, if all the premises were covered at $2000 the project would cost 77.5%. If we simply use three-quarters the investment required to do 93% if it cost the same as 75% would be three quarters of 22.3 or $16.725B

So my numbers to compare are NZ $15.4B, Australia $16.7B. That variation could be potentially explained by the fact Chorus has built fibre to the node, but nothing in it deals with their lost sunk investment in nodes.

No wonder after Turnbull used the EIU report the EIU analyst pointed out that their report favoured the Australian solution over New Zealand (behind AFR paywall).

The difference is that Turnbull consistently ignores 25% of the people. I continue to ask where Fiona Nash and Barnaby Joyce are on this?

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The Member for Wentworth

There it is in Hansard.

Interjector - Would the honorable member be prepared to sell the Post Office?
Member for Wentworth - No.

The Member for Wentworth though is not the current one, but indeed the Member for Wentworth in 1946, Eric Harrison. By then he was a former Post-Master General, and was then the Deputy Leader of the Liberal Party. The occasion was the debate on the Overseas Telecommunications Bill 1946.

The record of the debate in both chambers is well worth a read in the light of my comments earlier today. There were a couple of opposition members concerned about socialisation, but their bigger concerns were over whether overseas telecommunications should be in a Commission rather than in the Post Office with the rest of communications, and over the payment to be made to the private owners of the wireless connections.

It seems mighty strange in hindsight that it was Liberal members urging the combination into one Department and opposing a Commission structure.

The identity of the company from whom the assets were bought also provides an interesting tale on the concept of life being better under a private sector firm - because that company was Amalgamated Wireless (Australasia), better known as AWA. In its later life AWA was famous for going broke on the back of unwise foreign exchange transactions reflecting some of the weaknesses in the governance model of corporations. It then crafted a living repairing gaming terminals, a business they have grown and are now selling their brand for Big W stores "home brand" TVs and other electronics.

I've also finally got around to putting together some of the information from the 1910 Royal Commission. As also noted earlier the UK only finally moved to full public ownership of telecommunications in 1912, and the US debate on the matter started in 1913. Yet there was very little reference to it all in the Royal Commission.

The report at paragraph 16 merely noted;

During his examination the Permanent Head showed that he had no personal knowledge of post and telegraph systems in other countries, other than that acquired by reading the British Post Office Reports. He also referred to a modern economic writer on the British telegraphs and telephones. The conclusions of this writer have, in the opinion of your Commissioners, no relevance to the Commonwealth Post and Telegraph Department, as his object was to establish a case against Government ownership.

The comment appears to be to Robert Townley Scott's reference in his opening statement referring to the Hugo Meter's The British state telegraphs : a study of the problem of a large body of civil servants in a democracy. Meyer also wrote Public ownership and the telephone in Great Britain : restriction of the industry by the state and the municipalities. These are in their own right interesting an interesting read, but had little impact.

The committee seems to have only asked two others about the question of ownership, one of who was Alexander Graham Bell. Bell gave his evidence in August 1910 after the Committee report had basically been written. His only observation on Government ownership was that it might impede innovation, and recommended the establishment of a Laboratory. The history of the Labs at the PMG and Telecom is an interesting one in its own right. Suffice to note here that after privatisation TRL was closed.

More interestingly Bell talked about the importance of twisted copper pair over single wire (with earth return). Equally interesting is the discussion on efficiency of exchanges, and the desire to get more than one service over a pair of wires.

I kind of reckon based on his evidence in 1910 that Bell today would be backing the NBN.

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What is the opposite of Godwin's Law?

I don't know what the opposite of Godwin's Law is, but in a strange piece of irony it appears that Malcolm Turnbull is trying to define it.

The irony is, of course, that it was another Godwin (Grech) who caused Turnbull so much trouble when leader, resulting in a classic case of over-reaching and rhetorical flourish. To remind you Godwin's Law states "As an online discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches 1."

As the Wikipedia entry notes "Godwin's law is often cited in online discussions as a deterrent against the use of arguments in the widespread Reductio ad Hitlerum form." Turnbull has resorted to Reductio ad Communism (see note below). Turnbull started by simply relying on the Economist Intelligence Unit report on broadband investments (for purchase here). (That report and Turnbull's reliance on them show a complete lack of understanding of the principles of both economics and accounting...but more on that later.) But Turnbull's rhetorical flourish got the better of him, to the press he reportedly said;

This is the telecommunications version of Cuba. Cuba is the last communist state … I stand corrected, there's North Korea too. [Communications Minister] Stephen Conroy doesn't even have a North Korea to his Cuba, he's a one-and-only.

 (Intriguingly what looks like the official Cuba promotion site Cuba.com picked up the story and ran it without comment.)

 Let's start with some simple facts. There has been a national telecommunications monopoly for fixed line access in Australia since before Federation. The introduction of competition reforms and encouraging competitive investment did not fundamentally change that.

As I outlined in a recent submission to the ACCC the fixed line access network is even more a natural monopoly now than it was before. The decision being made is not whether to have a monopoly or not - that is determined by the cost structure. It is how to regulate that monopoly. As Senator Conroy said at the press conference announcing the FTTH version of the NBN;

This solves once and for all the core problem created when the previous Prime Minister privatised Telstra a decade ago without ever resolving the conflict of a private monopoly, owning the network infrastructure and dominating the retail market.

Australia's telecommunications network was Government owned until 1996. Indeed Government ownership was the global norm. The British government assumed full ownership and control of the British telephone system on 1 January 1912. Even the US Bell System (AT&T) was placed under Government control for one year to 1 August 1919.

In the discussion leading up to this the head of AT&T Theodore Vail said "all monopolies should be regulated." (See John Brooks Telephone).

Despite Robert Menzies determined efforts to ban the Communist Party, there is no evidence that he ever saw the ownership of the telecommunications network as socialist in any way. The entry on Menzies on the National Museum of Australia website notes;

Following increasing public dissatisfaction with Joseph Benedict Chifley's Labor government, the Liberal and Country parties swept to power at the general election on 10 December 1949. The fall of JB Chifley's Labor government followed a series of Communist-inspired strikes, controversies over Labor's wish to nationalise private banks, medical practitioners, transport and communications, and mounting public impatience with continuing wartime austerity measures.

The nationalisation of communications proposed referred to was only of overseas links. Ann Moyal in Clear Across Australia (at P.181) details how the Cable and Wireless Ltd monopoly on international cables was regarded as an impediment to war efforts. The initiative to replace Cable and Wireless' monopoly with "autonomous but interlocked government-owned telecommunications entities" was proposed by Australia and New Zealand at meetings of the (British) Commonwealth Communications Council in 1944 and 45.

It was enacted in Australia in 1946 and only one parliamentarian, a Liberal Senator from WA, took exception to a separate overseas telecommunications body 'when officers of the Post-Master's General Department are capable of undertaking their work.' (To be fair I should go read the debate on the OTC Bill to see if any Liberal voices were raised against this nationalisation or proposing privatisation of the PMG, and also read Alexander Grahame Bell's evidence to the 1910 Royal Commission .... but that will have to wait).

Ultimately the question is not whether government ownership of natural monopolies is communism; it is whether it is good policy (noting Vail's comment that "all monopolies should be regulated.") Sanford Berg and John Tschirhart in their Natural monopoly regulation: Principles and practices note;

If regulation of private natural monopolies results in inefficient production techniques and output prices, then one solution might be to socialize these monopolies: change the ownership from private to public. However, this proposal raises the hackles of many consumers, producers and regulators for reasons that extend beyond the domain of economic analysis.

Within the realm of economics though they list three main studies comparing cost of private monopolies versus public ones, Two conclude that public monopolies operate at lower cost, while the third finds no difference. The major basis for the assertion of the inefficiency of public enterprise is an article by Alchian (in a 1965 paper in Il Politico which only seems to be held in 4 libraries in Australia). Berg and Tschirhart state;

Alchian and subsequent authors have argued that public ownership will be less efficient because managers of public firms have more latitude in pursuing non-profit-maximizing objectives. Yet their hypothesis was not supported by the data.

The neo-liberal faith in privatisation is like so much of the neoclassical economic framework - a triumph of theory over observation, of analysis over empiricism.

Finally a note on the EIU study. The Australian Government financing of the NBN is totally by way of an equity investment in an enterprise that will return the cost of capital. The other programs it is compared to appear to be all grants - just like all the Howard Government programs. That Government can fund telecommunications this way is demonstrated by the PMG/Telecom story. The telecommunications function was financed by loans from the Commonwealth from 1959 on. All those loans were repaid with interest owing prior to privatisation in 1996.

If Malcolm Turnbull really wants to invoke a "communist" stance he might target a policy of "direct action" on climate change instead of the use of a price - but that is happening on his side of the chamber.

I propose Turnbull's Corollary to Godwin's Law "As a politician with no policy keeps talking, the probability of an illogical comparison approaches 1."

Note: Reductio ad Communism has been proposed previously for a Wikipedia entry but immediately deleted due to lack of references. Any readers who feel inclined to remedy that with references to Turnbull feel free (unless I get there first myself).

Novae Meridianae Demetae Dexter delenda est

Broadbanding America

In a speech US FCC Chairman Julius Genachowski has outlined plans for revision to the universal service arrangements to get broadband to rural areas of the USA.

In introducing these reforms he spoke of his visit to Libery Nebraska.

When I was in Liberty, I met with a group of residents at the local American Legion.

The people I met had a lot in common with all of us and all of America. They work hard. They care about their country. They care about their kids. They believe in the American dream, and want their community and children to have as much a chance for success in the 21st century as they had in the 20th.

But in one important respect, their lives are different from most Americans. Most of the people living around Liberty don’t have access to broadband. The infrastructure for high-speed Internet simply isn’t there.

I don’t know whether, a few years ago, they were concerned about the absence of broadband Internet where they live. But during our discussion, the group I met – which ranged from seniors to students -- was very clear that the absence of broadband in their community was having real costs and consequences.

One older man said he wanted to open a hunting lodge. He said he was sure it would be successful, but that without broadband it would be impossible.

A farmer at the meeting said he needs to participate in online auctions for equipment and cattle. He said he can’t without a fast Internet connection that allows him to bid competitively in real-time.

Two parents told me about their son, a young serviceman who has done three tours of duty. His friends overseas were having video chats with their families, but he couldn’t.

Other parents at the table spoke about how their daughters couldn’t access the Internet at home to research papers or email their teachers. They said many of their classmates who lived in other towns were online, and they just wanted the same opportunity for their kids.

It’s not just a theory. It’s a fact. Broadband has gone from being a luxury to a necessity for full participation in our economy and society.

There followed the most horrible description of the failings of their Universal Service Fund and Intercarrier Compensation arrangements. Unfortunately the mess that he was describing as the "Connect America Fund" and the "Mobility Fund" did not really sound much better.

To Australian ears they were sadly reminiscent as the kinds of failed broadband programs we experienced prior to the NBN.

More importantly they constitute the kind of externalised transfer payments that Gans and Hausman think is better than a Government built network.

I have responded to Gans' challenge and made a submission to the ACCC on Telstra's SSU. In that I outline the direct and indirect network effects of broadband and the reasons why the Government's NBN plan is an effective way to internalise the externality.

A real pity that the USA cannot embrace the idea of Government owned infrastructure. They did early in the 20th century briefly consider doing it to the telephone. It is not too late, and far more efficient than spreading cash thinly across poorly designed network initiatives.


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Another score for fibre

In a piece overly titled "NBN may reduce need for new power plants" iTWire has reported Rod Tucker's comments that though increased internet usage will continue to increase the energy demands of the sector - especially through data centres - the NBN will limit that demand.

In a great line Tucker said "Unlike fibre, wireless is energy hungry."

It would be interesting to undertake a full energy audit of some telecommunications technologies. For example, would a monopoly wireless business with lots of smaller base stations use less power and what would be the energy saving/cost of different topologies in construction as well as operation.

What is the energy consumption inherent in actually building the NBN? All those civil engineering works use a lot. What is the energy saving in reduced maintenance costs for copper and the end of linesman and techs visiting pillars to connect services?

Like so many things, a simple analysis of one feature is not the whole story.

(Pity the event the iTWire story talks about is in Melbourne ....)


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NBN Pricing

I provided a detailed analysis of the coalition claims about NBN prices today for iTnews. I step through each of the three claims made, the one based on a top od the range ADSL vs NBN prices from Internode, the bottom of the range comparison for iiNet and the mythical 5% price rises.

I also touched on the underlying issue of people unable to comprehend how that much capital can be spent without needing dearer prices and the myth that it has been competition that has reduced prices.

In my earlier drafts I had a comment that the tech media had largely ignored the comments, but today a few decided to prove me wrong.

First off the blocks Stan Beer asserted that the NBN would cost you more - entirely based on the monopoly argument.

Stan concedes the point that 70% of premises get their broadband from private monopoly twisted copper - but then in a leap of illogic says prices are kept down because it is heavily regulated and subject to competitive pressures. The level of downstream competition in the NBN vs ADSL world increases not decreases due to structural separation. The NBN is as heavily regulated as the copper network.

The HFC networks are not being mandated to shut - they are doing so as commercial transactions. The Government is prohibitting competitive overbuild just as, by the way, every Government on the planet bar Australia's did for HFC. The network is sub-additive in costs and competition is therefore inefficient.

Finally there is no mandation that wireless can't be sold in competition to the NBN, neither Optus nor Vodafone are constrained. Telstra is only narrowly constrained by the limitation on marketng wireless as an alternative to fixed line broadband during switchover. These last two points I made in last week's iTnews column.

Another rambling set of non sequiters was later published on iTnews today. It asserted that announcing prices now was providers playing politics and sucking up to the Minister. Certainly there was a degree of the reverse - fighting NBN pricing - in the original Internode prices but they did get CVC price reductions.


But there are prospective customers soon (none of the release sites are yet accepting commercial customers) and so providers need prices. Also providers now it is much harder to increase rather than decrease prices - I guarantee they are not low-balling.

The article otherwise made assertions that the NBN Co must experience cost blow outs siting the BER, though the auditor-general found the BER worked well.

It also relied on the hand waving about competition.

Then dear Renai le May commented about the total price construct and asserted that it was too much framed by ADSL thinking while the NBN is really a "giant LAN".

The problem is that the NBN is exactly like ADSL in overall network architecture - each ISP is a hierarchy of star networks of CVC and backhaul costs. They interconnect at 2 or 3 points not all 120 POIs. That means the cost model is just the same as it is for ADSL and speed and download are proxies for the cost of CVC and backhaul transmission required for each customer.

I actually had coffee with Market Clarity's Shara Evans yesterday. She was showing me her NBN Bandwidth and Price Scenario Model. Anyone really wanting to understand the cost structure of NBN services should consider acquiring the model (it is quite reasonably priced given the model complexity).

It has been said that the only certainties in life are death and taxes. To that I would add NBN FUD.

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When smart people say dumb things

As if having Michael Porter blather on about HFC wasn't bad enough, Josh Gans and Jerry Hausmann have contributed to the ACCC consideration of the Telstra SSU.

They maintain it is anti-competitive because of the deal on HFC (not to be used for broadband) and the deal on 4G (not to be promoted by Telstra at time of copper shut down as an alternative).

They first draw conclusions based on completely different market structures about the role of HFC in driving broadband uptake. These mostly model HFC vs ADSL, not HFC vs FTTP. They also mostly come from markets that were clever enough to award HFC monopolies rather than our idiotic duopoly (see note - UPDATED).

But secondly they really don't want Telstra to keep its HFC at all, they think it should be divested.

Hang on guys - Telstra made an NPV negative decision to build the HFC to block the competitive threat from Telstra (see Frank Blount in book with Bob Joss "Managing in Australia"). Optus thought the overbuild was anti-competitive, mounted a legal challenge (for $900M) but settled for what Telstra told Senate estimates (24 May 2005 at P.74) was a "miniscule amount, a very small amount." Telstra isn't about to sell the HFC to Foxtel.

In fact I bet the Foxtel partners are still trying to figure how to unpick the Foxtel shareholders agreement to migrate Foxtel to the NBNs Multicast facility.

Never mind the fact that the footprint of HFC hasn't been expanded since about 1997. Never mind that Telstra and Optus have no interest in using the networks. I think they know more about the technical viability than a couple of Economics professors.

But Gans and Hausmann rail against the lack of competition, even writing, "The presumption and evidence thus far is that competition spurs investment in these industries – even when characterised by a natural monopoly." That may well be the case, but it certainly isn't efficient investment. A natural monopoly is defined as one that is sub-additive in costs - that for any level of output one firm can produce the output more cheaply than two. That's why you only have one water pipe to your home.

HFC and telephony originally did different things and competed in some areas - HFC never did telephony well, and copper never did Pay TV well - both could do broadband. FTTH does all three better than either HFC or copper.

The HFC case is just nonsensical, technically and economically.

The mobile issue is equally illogical. Telstra isn't the only wireless provider. Both Optus and Vodafone can be expected to launch 4G, and vividwireless already has. Spectrum auctions in 2012 could even introduce more operators (though experience suggests the market can't sustain more and that maybe less is better). So what if Telstra doesn't offer 4G as an alternative for the short period around decommissioning copper - V and O still can. Customers can still buy it from Telstra even, they aren't saying they won't sell it.

The clause is very much a very standard one between an upstream and downstream player where the upstream guy is making the big investment that the downstream guy will use best efforts to sell heaps of it. Its the contractual way of dealing with some of the known problems of not being vertically integrated that Henry Ergas normally jabbers about.

Meanwhile, just to show the planet is going completely crazy, Bob Brown has introduced legislation to restrict the construction of mobile base stations. Much as I would like to say I told you so the proposal is dumb on so many levels. Unfortunately AMTA's Chris Althaus didn't really nail it preferring to focus on the NBN issue.

Firstly the consultation called for already occurs under an effective and complied with industry code. Secondly mandatory spacing from schools simply increases likelihood the school falls into the middle of the beam of most intensity (Brown is a medical doctor, he should be able to understand simple physics). Let alone the idea that mobile operators can forecast their tower needs five years hence!

But the biggie - are you listening Bob Brown - is that the recent labelling of mobiles as a "possible" cancer risk relates only to handsets held to your head - not base stations. You know the best way to REDUCE the power that the handset operates at - be CLOSE to the base station which means have MORE of them.

In fact a really good solution is to have your very own femto-cell - just like Optus launched. Guess what - that gets connected using fixed broadband.

Can we please be allowed to get on with delivering the future now?

Note: The Keating Government was presented with a suggestion by a shareholder in Optus Vision that instead of OV and Telstra duplicating the country should be divided into a set of franchise areas for monopolies. In most circumstances this would have been the right thing. In the specific case he was right to say no given who was asking - Kerry Francis Bulmore Packer.

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Investing in education or the NBN?

Interesting but unsurprising piece of research spruiking the idea that investment in higher education will produce greater productivity improvement than investing in the NBN.

The summary comment by John Quiggin though says it all. Noting that precise estimates of GDP or productivity boost must be taken with a grain of salt, he said

the general point that improvements in education have a higher payoff than either investments in physical infrastructure or microeconomic reforms is a well-established finding in the literature on economic growth.

It is unfortunate that Australian policymakers are still obsessed with policy ideas from the 1980s (microeconomic reform) or even from the 1950s (physical infrastructure).

The issue for me is that the NBN is a different kind of "physical infrastructure." It is not a coal loader or a new road or rail link, it is not a new generation plant to sell cheap electricity for mineral processing.

It is an enabler of the information society a.k.a. the digital economy. It is in particular an enabler of getting more education output for less resource use. It is also a tremendous mechanism for conducting research and disseminating knowledge, which are the real benefits of higher education investment.



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Broadband and jobs

I'm not a technological determinist. I don't believe that actions in the economy automatically follow from technology decisions.

It is a reason to be sceptical of cost-benefit analysis or any economic study that tries to imply that broadband or the internet "causes" certain economic benefits.

Equally any reasonable approach to economics recognises that the economy is not totally malleable - when you push into it at one point something will stick out somewhere else. So talking about "job creation" or "job losses" from one action is often stupid.

That said thanks to a retweet of a blog post by Kim McDonald today I stumbled on the Internet Innovation Alliance and their 10 facts about broadband and jobs and its associated press conference. They even have a state by state (USA) guide to the impact of broadband.

Interesting related work is a Deloitte report on the impact of 4G mobile on the US economy.

It is actually impossible to tie down direct future relationships between technology or investments and outcomes. If it were we wouldn't have Governments, just centralised economic planners.

What it is far easier to do is a "with and without" test. What are the prospects for a 21st century economy with ubiquitous high speed broadband and what are the prospects without? The short answer is that the former is clearly more adaptable and can adjust is production to match demands, the latter will be highly restricted in the opportunities it can pursue.

Novae Meridianae Demetae Dexter delenda est

Kiama and the NBN

I had the great pleasure of driving down to Kiama last week for the NBN launch there (the thing about the NBN for politicians is its like school building programs - an endless series of openings).

It gave me a good hook for my iTnews column, in which I demonstrate that Turnbull is using the same strategy against the NBN that his leader uses against putting a price on carbon.

Meanwhile I had a letter published in the AFR this week - in response to an editorial trumpeting the idea that structural separation really solved everything without reflecting on the fact that it was only the NBN policy that achieved that (submitted text below).

I couldn't work into either article the other famous thing about Kiama - which was Alastair Mackerass' beach house. As Master of the Lower School (and Maths and Latin teacher to Form 1A - aka Year 7) at Sydney Grammar School he would invite groups of the Form 1 boys to spend a week of the summer holidays with him there. I certainly enjoyed my week.

I can only presume that Malcolm Turnbull had this opportunity. I don't know if the other big NBN protagonist - Paul Fletcher - did, only because I don't know if Mackerras kept it up after becoming headmaster.

I tried hard to work it in. To have had the opportunity you had to be bright - but they now act so dumb. Perhaps it is the fact that they both went on to be participants in the school debating team - a skill where you learn to argue any proposition convincingly, no matter how much you disbelieve what you are saying.

Meanwhile the other memorable part of the launch was the "big red button". When depressed all that technically happened is a video started that showed a map being "lit up".

Anyone got any better ideas on what should happen? To go back to the road and bridges analogies from the column - how would de Groot upstage the button pushing?

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AFR Letter

Your editorial today (NBN already looking costly for consumers AFR 1 Aug) asserts that the marketplace benefits being achieved through the NBN could have been achieved through the structural separation of Telstra.

You fail to mention that no Minister prior to Senator Conroy was interested in doing so. The Member for Bradfield in his book Wired Brown Land makes it clear that the coalition recognised that they had an option to separate Telstra before starting privatisation, but that his then boss, Senator Alston, elected not to do so.

Senator Alston subsequently commenced an inquiry into structural separation, which was subsequently abandoned when then Shadow Communications Minister Lindsay Tanner published a report indicating it could not be done.

Senator Conroy and Lindsay Tanner together then developed the plan for the NBN, one benefit of which was to be structural separation. NBN Mark 1 did not reach a satisfactory outcome in part because Telstra refused to make a full submission unless the requirement for separation was taken out of the policy.

To assert there is an alternative to something requires the alternative to be achievable. No one has ever devised an alternative strategy to secure the structural separation of Telstra.

Finally, so far all retail prices announced for the NBN have been the same as current copper based prices. What is also announced though are new services not previously available to the consumer market, and at prices ten times less than comparable business services.

Novae Meridianae Demetae Dexter delenda est

DIDO - MIMO on steroids?

The ongoing discussion about the benefit or otherwise of the NBN continues to fascinate me.

There are essentially two schools.

The first is that we really don't need high speed networks anyway and that as a consequence we should accept FTTN. This is the group that typically says the NBN provides capacity beyond consumers willingness to pay. Some of this I'd agree with if I thought demand wasn't going to change. but it has in the past and will again in the future.

The second is that we don't need fibre because "other technologies" will get us to the faster speeds. These are either tagged as advances on DSL type technologies or new wireless ones. I generally dismiss the copper ones because the asset in the ground continues to age and while you might get more out of it for a while, you certainly wouldn't replace old copper with new.

The wireless ones become more problematic especially since some theoreticians invoke the Shannon limit as the ultimate determining factor, while proponents cite the ongoing evolution of wireless standards.

And so we come to a column in Comms Day today by Graeme Lynch telling us that DIDO - distributed input distributed output - is now just such a game changer.

My difficulty is that it really doesn't matter how fast the wireless bit can be in the great complement/substitute debate. Firstly, the faster the wireless the greater its backhaul requirement. We at the very least need a fibre to the base station model we don't currently have. Secondly, as I've written elsewhere there are other features of increasing use of wireless that go to environmental concerns that suggest it isn't a winning strategy as a substitute, even as a Fibre to the base station wireless to the house model.

Even more critically, as the author notes the cycle from technical development to commercial deployment is long. It may be shorter than the CDMA cycle he quotes, but the reality is that OFDM has taken a good decade or more from first use to beginning commercial deployment as LTE.

I'm prepared to place a bet that Australia's NBN on its existing timetable will be completed before the first DIDO service sees the light of day. At which point our very insatiable desire for bandwidth wherever we are will see the ability to use wireless on the go as a great complement to fixed, as it still is today for the vast bulk of customers.

Just think of the grand Optus femtocell announcement last week - reported by some as the end of the "landline". Sorry. You need an internet connection first.

(I should separately give credit to great analysis by Stuart Corner that I only read after writing the blog post.

Novae Meridianae Demetae Dexter delenda est

NBN Again - inconsistency of Joyce, warning for Turnbull

News in the AFR today (behind paywall) that the coalition is about to "change its point of attack" on the NBN from the need for a CBA or the integrity of the NBN Co CEO to the affordability of the service and label it the "No Battler Network".

This is a strange strategy since the analysis of the Internode pricing is that it is the same as their ADSL 2 services! Much focus has been on the fact that the entry level plan is dearer than a telephone line for those who don't just want a telephone.

But let's look as much as we can at the detail and how it is that voice services are delivered and priced. The NBN Co entry level wholesale price is $24 per month including the 150kbps quality 1 for voice. Internode isn't in the business of offering voice only so it hasn't looked at building a voice only service. But Telstra not only will, but has to. It will continue to be the contracted "USO provider". There will be from Telstra a voice only service at EXACTLY THE SAME price points as exist today.

A big difference between the network requirement for voice and Internet is in the backhaul - and the CVC charges Simon Hackett has bleated about. To provide voice you just need that 150kbps per service - not the up to 100Mbps that the internet requires.

I sincerely doubt the NBN Co/Telstra/Government agreement could have reached the point it has without clarity about the retail price for voice to be offered by Telstra.

The inconsistency from Joyce is that he is quoted as supporting a Fibre to the Node (which he calls broadband to the node) build because the price of higher speed services delivered by wireless or satellite will be higher than fibre.

His inconsistency is manifold. Firstly because in the period between his election to the Senate in 2004 and becoming a Senator he and Senator Nash delivered a report for the Page Centre calling for a fibre to the home network in regional Australia. Inconsistent because from 2007 to 2010 coalition response to the NBN was to say the network was unnecessary and that regional problems would have been solved by the OPEL contract - that is wireless.

Finally no one's FttN proposal results in a bigger physical footprint than the FttP proposal - the premises outside fibre reach are basically outside FttN reach. If not then there may be a small tweak possible at the margins.

The coalition strategy is ill-founded and should fail. That is so long as the ALP can focus its mind on facts not rhetoric.


Novae Meridianae Demetae Dexter delenda est

A footnote

This is just a note without analysis on the episode of "Evil" and the NBN.

The case was reported in the SMH. The headline read as if it was an attack on the NBN and the body referred to the attacker having access to the "entire system".

Tony Abbott in a press conference asserted the hack alerts us to the fact the NBN is centralised and hence a security risk.

Malcolm Turnbull then said

This is a very, very serious wake-up call for the National Broadband Network and for the Government. In establishing a national network of this kind, there is a greater risk of security breaches being able to pervade the whole network. What we're hearing today from the AFP is that this man has effectively been able to map much, if not most of the NBN's existing infrastructure. Now if that were done when the NBN were fully built, that would be a really a very serious security issue - national security issue.

That ABC report also made it clear that NBN Co systems had not been compromised - the "entire system" that the hacker had accessed was that of the service provider to the NBN, not of the NBN.

The real issue here is the myth that the NBN represents a "network centralisation". The NBN Co’s percentage control of all Australian communications infrastructure once built will be LESS THAN what Telstra has now (it replaces the Telstra acess network only – Telstra’s backbone and mobile networks stay with it).

I'll provide some commentary later.

Novae Meridianae Demetae Dexter delenda est

Where is Malcolm's Policy?

I'd dearly love to comment on Malcolm Turnbull's new broadband policy as announced to CEDA yesterday.  Unfortunately I wasn't there.  But more surprisingly the very media astute Turnbull doesn't seem to have published the speech yet.

Various parts of the tech media have covered it.  ZDnet reported it as a faster scaled back NBN.  Rob Burgess of Business Spectator reckons that Turnbull pulled two of the three planks supporting the NBN away.

From what I can figure out Turnbull is now saying that it is important to have a plan to improve broadband services in Australia.  That's a big change since through most of the Senate NBN Committee hearings the coalition stance was we don't need a faster network and all its for is entertainment.

Turnbull's plan is also supposedly based on the idea that Telstra should continue to face structural separation. He doesn't tell us, however, how that will be achieved - or would have been achieved without the NBN.  It is also a big change from coalition opposition to the structural separation bill that they labelled "a gun to Telstra's head".

His next big step is apparently to ask the Productivity Commission to do a "cost-benefit analysis" to choose the best technology mix and include FTTN.  I'm still prepared to stake my hat on that analysis coming to the same conclusion - if done properly - as the Government's Expert Panel.  That is, that FTTN is at best an intermediate step, and the extra upfront investment isn't worth it in the long run.  But the plan may have more credibility if he were to hire people who do CBA for a living - like business people - not people who spend their lives telling other people to do CBAs - that is the PC.

By the way, I wonder if Patricia Scott, former Secretary of the department and Chair of the Expert Panel but now Commissioner at the PC would get to run the inquiry.

There is no evidence that Telstra would have any interest in renegotiating its agreement to pursue a structurally separated FTTN build.  If the Government under the coalition were to say no FTTH NBN then Telstra would revert to their NBN Mark 1 position - no access to our copper in a structurally separated model.

The bit I want to see more of is the notion of a "voucher" system for regional services.  It sounds like crazy classic neo-liberal orthodoxy - like vouchers for schools etc.  There are scale economies in this stuff.  the vouchers are useless unless everybody spends their voucher on the same supplier...that is why we have Government as a way to co-ordinate action.

Turnbull's plan is not "credible" because, as far as i Can figure out, it really is exactly the same as the coalition non-plan from 2005 to 2007.  It just looks credible because Malcolm comes across better than Tony Smith or Bruce Bilson ever did.


Novae Meridianae Demetae Dexter delenda est

Net neutrality and the NBN

Part 2 of Kim Chandler McDonald's (KimmiC's) interview with Vint Cerf has been published.

In it he mostly traverses three topics, net neitrality, transparency of NBN costs, and e=health.

On the net neutrality issue he makes an assertion that the NBN in Australia should restrict the net neutrality concerns. As I discussed in my ACS-TSA policy gap forum piece on interconnection, the market power issue doesn't go away simply by virtue of the separated access network. It is changed, it becomes more manageable - but it is not eliminated.

Despite the Convergence Review getting the importance of any-to-any connectivity, their Emerging Issues Paper the issue is only dealt with under the rubric of "exclusive content" as opposed to "differential connectivity".

The e-health discussion simply reveals again how vexed is the question of health. Ultimately the glimmer of hope might come from the realisation that the best standards are built by user communities and the best applications come from end-to-end rather than mediated models.

Finally, the bit that made a bit of a headline, was Cerf calling for clarity in NBN cost data. The logic seemed to be that in the theory of "competing nations" we wouldn't want other countries to actually realise how cost effective an FTTP network by Government is.

The facts are that the Government and NBn co can keep some expectations secret, but their real costs will eventually be on the public record.

I for one think our NBn risk is about failure to get the downstream market working properly than failure to get the NBN built - they are NGN risks, not NBN ones.


Novae Meridianae Demetae Dexter delenda est