As someone closely involved with the Australian National Broadband Network (NBN) and many other fibre plans around the globe, I would like to provide an inside picture of the revolutionary developments that are taking place in the Australian broadband market. Australia’s national broadband network will be an FttH-based open wholesale network – a network that will connect (not pass) 90% of all Australians to fibre, with the remaining 10% of the population being linked to that network through technologies that are capable of delivering equivalent services.
Some commentators, mainly those closely linked with the incumbent telco industry, have an interest in painting a dark picture about this radical development, which will most certainly mean the end of the cosy monopoly and duopoly telco models.
Scott Cleland’s article titled ‘Australian Fibre Mae Broadband Model’ (http://tinyurl.com/r8bcly) is one example of this; it is more a reflection of the traditional telco interests than a discussion of the broadband vision and strategies that lie behind Australia’s national FttH open wholesale network.
The old order will have to change
What I see here is a clear indication that the vested telco and cable monopolies don’t want the US to catch the Australian ‘disease’ of open telecoms networks and unrestrained competition.
Australia is not the only country taking this new direction – if anything the USA is the straggler here. But it will be impossible for that country to ignore these global developments towards open networks.
We had a great win earlier this year when President Obama announced that the $7.2 billion broadband stimulus package would be based on the open network principles. The cracks are starting to appear in the telco monopoly fortresses of the USA.
I am leading an industry group called ‘Big Think Strategies’ that has furnished the Obama Transition Team and the FCC with reports promoting open networks. Its sister group in Australia has also provided ‘Big Think’ reports to the Australian government.
Looking at some of the outcomes of these policies, both in the USA and Australia, we see that governments are beginning to understand the economic and social benefits and the multiplier effect that these infrastructure investments will give to other sectors (healthcare, education, energy, etc). These reports are all publicly available: http://www.budde.com.au/presentations/Digital_Economy_Industry_Group.asp
The economic crisis has revealed that some industries are committed to preserving the past – first banks, then autos, now telcos and media companies. And so, as we will see in the Australian example below, any entity whose interests are closely aligned with the old ‘closed’ order might feel threatened when the government decides to build an open information superhighway directly into every home in the country.
A vision for the future
Australia’s vision is more like President Eisenhower’s State Highway scheme – a project that transformed the US economy – than the failed laissez faire policies that generated our current economic ills.
And so it comes as no surprise that those stuck in the old way of thinking would characterize the Australian NBN in terms that make sense only when applied to the traditional (and widely acknowledged as failed) approach to telecommunications.
Market failure is what got us here
The reason that a national open wholesale network based on FttH (Fibre to the Home) – such as the one currently developed in Australia – warrants government intervention is that, just as there was a market failure in Eisenhower’s time that led him to intervene and build road infrastructure for America’s 1950s economy, there is now a similar market failure in the national broadband infrastructure we need for today’s digital economy.
Like President Eisenhower in the USA, Australia’s leaders understand that economies must invest in basic infrastructure if they are to prosper over the long term. Eisenhower had many critics at the time, yet the interstate highway system is widely acknowledged to be one of the best investments ever made by the United States government.
Compare the highway transformation developments of the 1950s with the present telecommunications infrastructure in the United States. It is built mostly of copper wire, using technology that is no different from that deployed by Alexander Bell in 1870 – analogue transmission of voice signals over copper wire. Today the United States spends billions of dollars per year subsidizing these out-of-date systems. Is that a sensible thing to do or should we come up with another visionary infrastructure project, this time not for the State Highways but for the State Electronic Superhighway?
Innovate or die
Australians, like Americans, know something about frontiers. We share a common national spirit that says yes to progress, that says yes to innovation, and that is not afraid to change the way things are when that way no longer serves us. It no longer serves America to be hostage to a telco/cable duopoly that controls, not only a vast majority of the landline market, but more than half of the wireless market as well. It no longer serves America when ‘divestiture’ of monopoly assets means Verizon sells some wireless properties to AT&T or another cash-rich, heavily subsidized landline monopolist.
Openness and cooperation, not half-truths and innuendo
Some of the commentators in America attempt to mislead the public with half-truths about the scope, extent and nature of Australia’s expansion into frontiers of electronic commerce and intelligent infrastructure. It is their belief that a national fibre optic transformation will never see the light of day.
On the other hand, people like me believe that the open fibre optic infrastructure could rocket Australia’s economy ahead of the USA, where the growth of its digital economy is being held back by those clinging to the monopolized telco infrastructure systems.
Benchmark
Traditional telco thinking in the USA is grounded in a silo mentality and they see the Australian network only in the very narrow context of telecoms and entertainment. This is not unique to the USA; it is a mindset common to vested telco interests in many countries around the world. Almost everybody else, however, can see the economic and social benefits of a radical change here.
Australia is way ahead in its thinking on issues such as the economic multiplier effect of investments made through stimulus packages. It is looking at what a national FttH infrastructure can do for the country. The Australian NBN is based on a trans-sector model and will be used for the delivery of services from a range of other sectors, such as e-health, tele-education, public safety, civic participation, smart grids and, yes, Internet and entertainment services also.
Leaders and laggards
The world is facing a range of challenges and these all apply to the USA also. There is a health crisis, an education crisis, an economic crisis and an environmental crisis. None of these problems can be solved by the traditional structures we have had in place over the last 50 years. Admittedly an NBN will not solve them either, but nothing can be done towards a resolution of any of them without the NBN infrastructure.
The USA continues to linger at around 15th place on the OECD broadband penetration tables, down from 4th place in 2001. It is at no risk of falling behind – it has already done so, the reason for that being that the country is one of the few western democracies that operates according to a monopolized (or at least duopolized) market.
So much for the nation that preaches the virtues of competition.
Wholesale only infrastructure
What Australia is envisaging is a 21st century infrastructure that will see all homes connected to an FttH (or equivalent) open wholesale network. Under a PPP (Public Private Partnership) model a separate 51% government-owned utility will be established – to be privatized in five years – and this company will only provide wholesale services. Telcos can participate in this company by exchanging their assets for equity in the new utility.
Trans-sector model – much more than just Internet
This means that healthcare organizations, educational institutions, utilities, media companies and others can deliver retail services over this network, independent of each other.
This does not require the end-user to necessarily have an Internet connection. For example, healthcare organizations can provide a monitoring service that could allow people to go home earlier after a hospital procedure and be monitored from their homes.
We can’t build enough retirement villages for the baby-boomers so they need to be monitored from their homes. This monitoring equipment can be plugged into the FttH connection that an open access wholesale network utility will provide. Smart utility meters can be linked into that connection, again totally independent of any telco services; and, of course, Internet and entertainment can be delivered in that way as well.
Some of the services will be funded by the savings the government makes from e-health. In Australia the Health Department has indicated it can save A$30 billion in ten years by using e-health. Both US and Australian research has indicated that smart grid technology can save up to 30% of electricity usage, more than enough to pay for that connection, and, who knows, the electricity company might throw in a free Internet connection or a few free movies to provide an incentive for people to use certain energy-saving applications.
Others will provide their independent services to the end-user free of charge, as they will be sponsored by advertising. In other words, totally new business models will be developed once the system frees itself from the stranglehold of the telco monopoly/duopoly.
Economic multiplier effect of infrastructure
True, some of these services can also be delivered through separate networks (eg, the comms networks from telcos, municipalities, utilities), but in Australia we ask ourselves whether it makes sense on a national level to build multiple networks. Wouldn’t it be more efficient to share a utilities-based infrastructure? For us at least this makes economic sense. Of course, we will have open competition to provide services over that network, but does that competition require separate multiple access networks?
In fact, a national open-access FttH network in the USA would mean – as it does in Australia – that any company, anywhere, could compete on equal terms with the telcos and cable companies. This would mean a massive increase in competition and innovation. It would instantly wipe away the silly debate in the US around net neutrality. This is not a problem in any other country. It is the monopolized nature of the telco market in the USA that has made it an issue there.
Healthcare can be delivered via the vertically-integrated networks of Verizon and AT&T, but at what cost to the end-user and/or the government institutions? These are national interest issues and are often not well-suited to models that require profit maximization, especially if these commercial models are close to monopolistic in nature.
Only fibre will do
Once one starts thinking about these applications the conclusion is quickly reached that it does make sense to investigate national open wholesale FttH infrastructure.
Mobile networks are not suitable for the delivery of many of these trans-sector services, at least not in densely populated areas. Although the radio-air interface can now reach speeds that are comparable with real broadband, speed is different from capacity. Because it is a shared medium – where one user’s transmissions can interfere with that of others – it offers either speed for the few, or basic connectivity, at best, for the many.
Apart from that, there is an international consensus that fixed and mobile networks largely complement each other, so placing them in a list as a solution for the USA situation is misleading.
Reactionary incumbent telcos don’t like it
In Australia the government and the rest of the industry, as well as consumer groups, tried to convince Telstra to participate in this new thought process. The Australian incumbent telco was then led by ex-US West CEO Sol Trujillo, who took precisely the same view as the vested telco interests in the USA.
But after four years of battle, Telstra lost and the national interest won, and, as we will see below, other countries are following a similar path.
I am convinced that eventually commonsense will prevail in the USA as well, and that some sort of structural separation will be carried out between infrastructure and services. Why? Because it makes economic sense if you are serious about achieving a multiplier effect from your national infrastructure investments.
Some Americans might be lured into believing that ‘America is different’. However that is the cry I have heard every single time, in every single country, from every incumbent telco before they were forced by government policy to change.
Vertically-integrated telcos hamper innovation and penetration
Vertically-integrated models are not developed to maximize the use of the infrastructure. On the contrary, they prevent others from utilizing that infrastructure because they are structured to keep competitors off the existing network as far as possible, only letting them in on the most onerous terms possible.
The business model of a commercial vertically-integrated telco – a monopoly – is vastly different from that of a network that is needed to serve the national interest. Also the USA can’t escape the fact that an FttH infrastructure is needed to modernize the American society and the American economy. And, if one thinks seriously about it, what will be needed for that is a model that, in its concept at least, looks like the one Australia is developing.
Is the USA really so superior?
There are still a lot of people in America who believe that their country is vastly superior in all of this, and that they have taken on developments such as the ones that are occurring in Australia. If that is so why does the USA have such a low penetration of broadband in comparison to other developed countries? Why is broadband in regional areas way below that in other countries? And how does America envisage some of the social and economic infrastructure challenges beyond simple Internet access and entertainment?
Aussie model not one-size-fits-all
Should the USA, therefore, copy the Australian model? Absolutely not. But Americans could perhaps consider the trans-sector concept with its economic multiplier effect and universal value, and consider how those values can be realized in the USA. I am sure that the implementation of such a concept will indeed be different from the Australian implementation.
While all models are vastly different from each other, Australia is not alone. Other countries are moving in a similar direction, including: UK, New Zealand, Netherlands, Sweden, Singapore, Finland, Japan, Korea, Thailand, Switzerland, Greece, Malta and Mauritius.
Also good for enlightened incumbent telcos
It can be concluded that an open access wholesale NBN will be a threat to traditional incumbent telco and cable TV models, which embody an unwillingness to see the larger ‘national interest’ picture and an unwillingness to open up to new business models that allow for multiple independent services to be delivered by independent organizations over the one infrastructure.
But in Australia, with Trujillo gone, it is interesting to see that Telstra has turned around and is now seriously considering the government plans – and is looking at ways that might actually see it cooperating. One option is that it might put some of its assets into the new wholesale utility.
We have seen a similar change in attitude in other countries. Ad Scheepbouwer, the CEO of national telco KPN in the Netherlands, made some revealing comments on that topic.
In hindsight KPN made a mistake back in 1996. We did not react too enthusiastically on the obligation of allowing competitors on our old wireline network. That turned out not to be very wise. If you allow all your competitors on your network, all services will come onto your net, and that results in the lowest cost possible per service – which, in turn, attracts more customers for those services. So your network grows much faster. An open network is not charity on our part. In the long run it simply works best for everybody.
If the trans-sector approach is taken there will be a quadrupling of the current telco pie. We estimate that healthcare will take 25% of FttH capacity, utilities around 15%, education 20% – and Internet and entertainment will not shrink. But you can’t increase the size of this pie if you cling to vertically-integrated models.
Certainly Australia is a long way off successfully implementing this model and there are many obstacles to be overcome, but we are at least ‘giving it a fair go’.
Paul Budde
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