NEW REPORT OUT NOW
10/02/2011
This article, by Michael Porter, was published in The Australian Financial Review on 10 February 2011.
The floods and cyclones, plus the need for fiscal responsibility, together create a real opportunity to meet budgetary pressures and restore common sense and competition to the implementation of faster broadband.
It's a way for the Gillard government to get out of the national broadband network (NBN) bind and move towards a demand-driven model, away from a state monopoly.
US President Barack Obama announced in his State of the Union address a plan for 98 per cent of Americans to get wireless broadband via 4G, by building on a mix of existing and competing technology. The country's private broadband sector will enlarge its competitive presence and, already, 4G is expanding there.
Even countries like India are showing the way. Speeds of about 100Mbps on 4G are far higher than those proposed for the NBN, and at below 5 per cent of the cost to taxpayers. What is more, the model is targeted on people, who move - not their stationary premises.
What is also different in the US is the launch of fast cable modems using DOCSIS 3.0, creating competition for wireless mobiles, for the copper ADSL and for fibre-based systems. It's very technical, but the simple truth is that the cable that delivers pay TV to so many homes in Australia can deliver very fast broadband - 10 times faster than what's now obtainable for most people. And it can be extended to millions more homes at a tiny cost compared with the NBN.
There is huge value from competition between cable modems and ADSL - yet Communications Minister Stephen Conroy's NBN plan is to terminate use of cable and ADSL in order to prop up the NBN finances. What my technical friends tell me is that the real puzzle in broadband is just how to set up the infrastructure necessary to service the exploding demand for wireless systems. Just as the Australian government seeks a mandate to spend $40 billion of taxpayers' money on fibre optics, Obama's decision signals that it may be staring at the wrong model.
There is also much talk of lawsuits and court challenges to the NBN model, since a key is Telstra's agreement to decommission the modem competition on the Foxtel/Austar cables owned by Telstra and Optus.
Australian Competition and Consumer Commission chairman Graeme Samueland Conroy have conceded that the payment from NBN to Telstra is a violation of the old Trade Practices Act. It amounts to a destruction of capital not measured in any analyses.
The only reason the payment is contemplated is that it makes the NBN look like an investment - and takes the monster spend off budget. But once it is seen for what it is, a major unfunded government project, then budget surplus projections become fanciful indeed, since $30 billion to $40 billion is added to government outlays.
The real reason Conroy wants Telstra to sign up is that otherwise a very fast competitive service would be available for about 8 million Australians via its cables. And if the same parties expanded their 4G offerings, the NBN would become a white and wired elephant.
Surely insisting on this massive spend, after flood and cyclone has devastated infrastructure, houses and farms, is a way for Australia to trash its well-earned economic reputation for prudential public finance and replace it with telecommunications wastage through an anti-competitive government rollout and destruction of private capital.
What the US shows is that we can use selective private funding of a mix of 4G wireless, WiMax, satellite, copper and fibre - all competitive, some linked and with regulation only of monopoly nodes and associated access points in some cases.
When Prime Minister Julia Gillard addressed a meeting of the Committee for Economic Development of Australia in Melbourne on national economic priorities last week, she alluded to the scope for local governments to work with the NBN to enable a rollout at lower cost. Perhaps she was thinking of emulating New Zealand, where areas that don't need it don't get it.
This is the opposite of Conroy's force-feeding of fibre almost everywhere at a cost of more than $5000 a family - about 50 times the US cost. The potential for Optus and Telstra to upgrade their cable offerings is real, and speeds of 200Mbps are shown as feasible in the NBN business plan review of alternative models.
In other words, should NBN hit a snag, existing competitors have the capacity to provide and expand fast broadband in many areas.
By not spending in the urban Foxtel or Austar areas, the government would perhaps save $15 billion. This could help finance rebuilding after the floods and cyclone, finance delivery of 4G to the bush, and fix black holes that plague many urban and rural areas.
While the US has had its policy and regulatory failures, it now has broadband competition emerging on many platforms. Not a cave-in to a single fibre backbone monopoly as Conroy proposes via the NBN. Not an end to broadband use of other private-sector assets, with the lure of payments via the government beneficiary, the NBN Co. And not a cherry-picking tax on new 4G wireless systems in populated areas, as envisaged by the McKinsey KPMG report.
While the NBN scheme has quite ambiguous designs for the rollout of wireless, a country as big and as sparsely populated as Australia should probably have a greater focus on wireless. There is no doubt that underneath a 4G Obama model for Australia a lot of fibre optics would be rolled out. But any subsidy should be to make sure the system is in sync with existing competitive broadband assets such as copper and HFC cable.
The resulting menu of choice, as in the US, would facilitate exciting technology options and not be subject to a new monopoly approval via the NBN.