CeBIT Australia News

By Paul Budde, Managing Director, BuddeComm

Australia’s national broadband network is well underway and now would seem to be a good time to revisit its history and re-examine the rationale behind its inception.

During the privatisation process of Telstra in the 00s several things became clear

• broadband quality was below the international benchmark;
• end-user and wholesale prices were above that mark; and
• there was no economically viable business case for high-speed broadband infrastructure for regional and rural Australia.

Coinciding with the debate around these issues was the arrival of the GFC and the government’s decision to change its broadband infrastructure plan from a regional to a national one. It also linked that to the development of the digital economy and launched supporting policies in e-commerce, e-health, e-education and smart grid, all aimed at utilising the NBN for those purposes.

According to the national plan NBN Co will connect 93% of homes, schools and workplaces to an optical fibre network (fibre-to-the-premises – FttP), supplying high-speed broadband services to Australians in urban and regional towns. The remaining 7% of premises will be connected to an LTE-based fixed wireless network, with extremely remote areas being linked to a satellite network.

The $36 billion plan includes a government investment of $27 billion. This investment also needs to be viewed in the context of the $60 billion raised by the privatisation of Telstra.

There has been a great dea of progress during 2011 and early 2012 and all the major elements are now in place:

• the NBN legislation;
• the regulatory framework;
• the agreements with Telstra and Optus;
• the business plan of NBN Co; and
• the structural separation undertakings of Telstra.

Obviously new issues will arise and solutions to existing problems will need to be finetuned, but there is consensus that, with the assistance of the ACCC, this will be possible within the current framework.

Gone are the old monopoly days
Telstra’s structural separation of infrastructure and services is going to change the telecoms industry beyond recognition. The days of gaming the regulatory system will be over and the industry will . The industry will be structured completely differently –collaboration and cooperation will be required, rather than the destructive adversarial environment of the past.

Nevertheless there are still some serious issues that need to be resolved.

Firstly, are the current government policies conducive to achieving the affordable outcome that is necessary? The first signs are promising.

The other question is whether the design of the NBN will lead to true wholesale competition – or whether it will restrict competition to a handful of players who can afford to build their presence in the 121 points of interconnect.

Since 2011 an increasing number of retail service providers (RSPs) have been accredited by NBN Co to take part in the various pilots, as well as in the official rollout program. As NBN Co is a pure wholesale operator the end-users will depend upon the RSPs for innovative products and affordable pricing.

Looking towards 2020
Affordable pricing is the key to a successful uptake of NBN services. Early indications are that a 12Mb/s entry level service will be priced at around $39, and a telephone service can be added for an additional $10. IPTV add-ons are also priced at $10. Compared with similar services available over the current telecoms networks these offerings are most competitive and, according to BuddeComm, over the longer term this should easily lead to a 70%+ commercial uptake.

The Australian telecommunications market will change dramatically over the next ten years. Accelerated by government policies these changes will be driven by a total overhaul of the industry.

Telcos will have to decide where they want to play.

Infrastructure will largely move to NBN Co, its contractors (eg, Telstra) and a few backhaul providers. Companies also have the option of becoming the ICT providers to healthcare, education, energy utilities, etc. The larger sectors in particular will create a sizeable demand for value-added infrastructure services. The first of such contracts signed in the healthcare industry offers glimpses of such a future.

All of this will help the industry double its size, to around $80 billion by 2020.

Boost for the digital economy
Alongside its plans to build the NBN the government also launched its National Digital Economy Strategy.

Based on the trans-sector model, the NBN will become the shared infrastructure for a range of sectors such as e-health, e-education, smart grids, e-government, digital economy, digital media, etc. The first release sites are playing a key role in testing this concept, while at the same time allowing organisations to obtain first-hand experience in building the digital economy.

Such an approach will most likely generate economic and social benefits worth many billions of dollars and, as is already becoming evident, it will create significant new business opportunities for Australian companies. In healthcare alone there is talk of savings worth more than $10 billion, plus $2 billion in smart grid.

However at present the funding arrangements for these sectors are silo-based, and trans-sector policies need to be developed to maximise the transformational opportunities of the NBN.

To construct a sound business model for the NBN the abovementioned sectors need to be taken into account as key areas in the delivery of social and economic benefits to the country. The government has designated the NBN to be a nation-building project, with a clear national purpose – it will become a social highway.

This is one of the major stumbling blocks in relation to the NBN policies of the Opposition. They have yet to declare their position as to the role of the NBN in developments such as e-health, tele-education, e-commerce, smart grids, etc. Without a clear policy on this they will also be unable to come up with a proper cost-benefit analysis.

But in the current government legislation, as well as in the NBN Co business plan, the NBN is still largely positioned as a telecoms network, with no clear reference being made to those social and economic benefits. Its revenue structure is based purely on telecoms income. This leads to ambiguity – for example, in relation to whether NBN Co should design the NBN as a telecoms network, or whether it should ensure that the specific requirements of these other sectors are taken into account in the design and construction.

These issues are not going to disappear and the government should therefore address them as a matter of urgency. If this is not done, and if the next election were to result in a change of government, the NBN could be subject to serious delays, since the Opposition has indicated that it would first want to investigate these cost benefits before going ahead with any broadband plan it might develop