My interview with Alan Jones

Apparently upon leaving the country I am more of a media magnet. Click here to listen to my interview with Alan Jones on the NBN. He drops the whole 2020 picked thing but then I outrant him. Quite a treat.

Wired vs wireless. Complements or substitutes?

NBN claim that crimping Telstra’s promotion of wireless broadband will not impact on competition because wired and wireless broadband are complements. So you would think that when Telstra announced its new pricing today, it would reflect that. Not so. The products are still well and truly separate with download caps being lifted a little on both. If wireless and wired are complements then where are the bundles? After all, if all customers value the products together, surely there would be a competitive advantage to offering a bundled product compared with ISPs who can only offer one or the other?

[Update: I stand corrected. Telstra does, in fact, offer wired and wireless bundles. Next question: will they continue after the NBN? The current proposed agreement seems to allow that to happen.]

The Guru?

OK I can’t let this one go. I have been alerted to an interesting front page story in The Australian today. Here is the said front page and here is the story. Now I’ve been called many things in my time (“Internet monkey” still being my favourite) but “Kevin Rudd’s guru” was really out of the blue. I mean, really? Along with a mere 1,000 others I attended the 2020 summit over three years ago — which I was happy to do. But let’s face it, that is no real association with the Government. To be sure, I have supported the general idea of the NBN — especially as a means of breaking up the problems of competition in telecommunications. But unless I have missed it, I have never advised anyone in the current or previous Government’s on broadband. But, seriously, the “guru” tag really doesn’t apply.

That said, if it will give some publicity to the cause of getting competition back into the broadband debate, please call me what you want. But on that score, I thought that Business Spectator‘s treatment of my submission with Jerry Hausman did a great job in summarising the economic issues at the heart of it all.

In any case, all this comes on a day that Andrew Leigh quoted me in Parliament in a thoughtful speech on climate change. According to our media slant methodology, that means that The Australian moved one datapoint to the left.

Submission to the ACCC on the Telstra Structural Separation deal

Jerry Hausman and I have written a submission to the ACCC inquiry into the structural separation deal between the NBN and Telstra. You can read the submission here. Suffice it to say, we are not happy with the agreement that prevents Telstra from using its HFC network for broadband (and Optus’ similar agreement too for that matter) nor are we happy with the crimping of potential competition from Telstra on wireless broadband. Both of these agreements are for 20 years and seem clearly designed to set in place the conditions for a new monopoly in telecommunications. If that emerges then the social case for the NBN goes away. Hopefully, the ACCC won’t allow it.

Conversation with Malcolm Turnbull

When I was back in Australia last month, The Conversation website got Malcolm Turnbull and I together for a 30 minute conversation (as is their want). You can read the transcript and watch some videos of what we discussed here: hint it was all about the National Broadband Network. Nothing too surprising emerged although the discussion I think was fruitful. The continuing competition issues highlighted this week by the ACCC continue to mean that the NBN is moving towards the socially inefficient.

Some thoughtful comments on broadband policy

From Gregory Rosston and Scott Wallsten [click here]. Here is a summary of what they say:

  • The income divide in broadband access far outweighs the urban-rural divide. I suspect that is true in Australia as well. The implication is spending lots of money to wire rural areas will likely have a very small impact on broadband usage there.
  • Emphasis should be placed on subsidies to low-income households for broadband rather than attempts at universal service obligations. In Australia, the current plans to provide equal broadband prices everywhere rule that out.
  • Using experiments or auctions are the best way of delivering low-income subsidies on broadband. This could also be used to support efficient deployment of rural broadband.

Methodologies to Value Broadband

So you want to do a Cost-Benefit Analysis on the National Broadband Network but don’t know where to start? Have I got the link for you.

Richard Hayes of Melbourne Business School has created a report that looks at all of the options for sensibly evaluating the benefits of broadband. You can download it here. That will get you started on the benefits. For the costs you’ll need a network engineer — but let’s face it, that’s the less controversial bit.

The NBN business plan

The NBN business plan has been released and there are really no surprises. Some quick reactions:

  • Rate of return: they have forecasted a 7 percent internal rate of return. Let’s be clear, for an infrastructure investment with risks that this one surely has on the demand side, that is a below-commercial rate of return. It is, however, a net positive social return of return but that depends on how you run the NBN.
  • Wholesale prices: the wholesale prices for access seem within expectations but are ruling out basic broadband at cheaper rates so we will truly have universal access.
  • Download caps will remain with the vast majority of users unable to fully utilise the speed advantages of the NBN.
  • They won’t be providing HD video conferencing: why is this so? If you look at Exhibit 9.26, they claim this requires 1Gbps speeds. But on Exhibit 8.13 on the most expensive access scheme, the upload speed is at most 400Mbps. So that is out as is Healthcare Information Management. And if you look at Exhibit 9.26, the only remaining applications anticipated to require more than 100Mbps are downloading massive pictures. Really, nothing else.
  • On competition, there are some red-flag assumptions indicating a future war on consumers. For instance,
Cherry Picking – The Government will provide effective regulatory protection to prevent market participants entering the FTTP market and cherry picking the most commercially attractive areas ahead of the NBN build. The viability of the project is dependent upon this protection; and
Trade Practices Act (TPA) Protection – The Government will provide any required legislative (or regulatory  as appropriate)  protection to NBN Co in order for the Company to implement the semi-distributed PoI model (including the cross-subsidy required by the Government to achieve
And, finally, there is clear evidence that the deal with Telstra is highly anticompetitive:
In a fully competitive scenario (i.e. assuming no deal with Telstra, see  Sub-Section 3.1.1,  Telstra Definitive Agreements) it is likely that one of the existing HFC networks will be upgraded at least to encompass node splitting, thus being able to offer speeds of over 200Mbps to over 2 million premises but with substantially lower performance than GPON (lower upstream speeds and higher  contention ratios). It is considered less likely, but still possible, that both networks would be upgraded, given the very substantial overlap between the two.

We should be outraged at this. More to the point the ACCC should be outraged with this. Where is Graeme Samuel on this? We have a clear statement that we will be getting a 3 to 2 or a 3 to 1 transformation as a result of the deal between NBN Co and Telstra. This is as substantial a lessening of competition from an agreement that we can imagine. And yet our independent competition regulator — whose independence is there because Government business entities are subject to the Trade Practices Act — appears to have abdicated its role. At the very least, this deal needs to go through authorisation so that we can assess whether there are public benefits here. And where is the Opposition calling for markets to work and the law to be applied?

In summary, the NBN is structured as a subsidy for the rich in Australia. It has the potential to be so much more but the obsession with commercial returns has killed it. Where is the Labor party? Where are the Greens? How do these MPs live with themselves knowing that they are abandoning core values.

The NBN’s Big Contradiction

For proponents of the NBN, the primary benefit rests on a theory that broadband is the type of infrastructure whose future value is inherently unknown but historical experience with similar endeavours (the Snowy, roads, railroads) provides support for forging ahead. The idea is that by providing it, innovators will work out how to make good use of it.

But the NBN as it is currently evolving is enshrining a monopoly and, indeed, literally ripping out other competing infrastructure all in the name of order. The ACCC has legitimate concerns and though should have much more.

But this exposes a contradiction. If the primary benefit of the NBN is the flow from innovation and that innovation requires chaos, open system and experimentation, then the current implementation of the NBN is anathema to all of that. You can’t have it both ways. Either you want the NBN and its innovation or you don’t.

And by the way, if you want historical support on the notion for information infrastructure you need to commit not to control read Tim Wu’s, The Master Switch. It’s probably the best book I have read all year.

Sheer nonsense on NBN installation costs

In the Sydney Morning Herald, this article suggests that it could cost $400 per room to wire for the NBN. The information came from network engineers who provided the SMH with a quote — in both senses of the word. Here is the thing: no it won’t. I know because I have done it. Back in 2002, we bought a new house and I decided that I wanted a shiny new network in it. We put in 28 connections — yes, 28 or at least 2 per room — with Cat-6 cabling. Why? Two reasons. First, the other adult in the house is a wireless telecommunications engineer and wanted a wired solution as she saw wireless as unsecure. Second, we wanted to use it for an in-house phone system. I’ll admit that it was complete overkill but since we were installing, it made sense to go all out. I was ‘future-proofing’ the house.

So what did the cables and installation cost back in 2002? $2,000. That’s not cheap but compare it to the SMH’s 2010 quote. We got that for $71 per point. I’m thinking that today, those costs on the cabling side at least would be a fraction of that. So you could probably get it down to $50 per connection if that was the way you wanted to go.

That said, we have had the fastest residential internet connection in the country. And you know what, a couple of years ago we went wireless and haven’t skipped a beat. That said, if we ever sell our house you can bet we will be putting in the point ‘NBN-ready’ on the sale doc. Maybe our agent can quote the SMH that such things add $11,200 in value to the house. And, on that score, maybe I shouldn’t be blogging on this!

So you can thank me for performing the ridiculously expensive experiment that at the same time tells you what you need to do.

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