Paul Budde, Managing Director, BuddeComm

Paul Budde, Managing Director, BuddeComm

I formed this company back in 1978. I have a marketing degree from the Institute of Marketing in the Netherlands, my focus is business strategies and government policies. As a special consultant to the ITU/UNESCO Broadband Commission for Digital Development, I am heavily involved in international developments such as FttH, mobile broadband, trans-sector use of infrastructure and the digital economy. I write most of the international analyses and also, of course, closely follow the markets in Australia and New Zealand.

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Rhineland economic model is closest to smart city developments

It is interesting to compare the major economic models in the western world – the American Anglo-Saxon model, the European Rhineland model and the Scandinavian model.

The Anglo-Saxon model is very much driven by small government, market-driven economic and social policies, and in general has a large focus on shareholders value.

By contrast the other two models operate more in accordance with the so-called triple-bottom-line; a more equal focus on combined economic, social and ecological outcomes. The Scandinavian model goes the furthest with a very high level of government involvement in all sectors of the economy and the society – all the basic  elements of life are fully looked after (education, healthcare, social welfare, childcare, old age pension; but also public transport and other essential infrastructure). Obviously this is reflected in higher taxes, but people in these countries clearly see the value of their socio-economic model as it provides peace of mind throughout their lives. As is clear in the recently published World Happiness Report – the annual UN survey that looks at ‘happy citizens’ – the Scandinavian countries consistently score the highest results, despite their high tax regime. This year Norway is number one, Denmark 2, Iceland 3, Finland 5 and Sweden 9. The latter shares this position with Australia. The USA came out in 19th place.

The Rhineland model is perhaps best described as a socio-democratic adaptation of the capitalist Anglo-Saxon model, with clear hybrid characteristics, for example in countries such as the Netherlands. Both the Rhineland and the Scandinavian model are based on the broader stakeholders value and not just on shareholders value.

While in the current political climate the Australian federal government’s focus is still very much geared towards the Anglo-Saxon model, the story is completely different at a city and community level. When I travelled with the Dutch-led Global Smart City and Community Coalition (GSC3) through Australia earlier this month, I was very surprised that all nine Australian cities we visited voluntarily talked about the need for a triple-bottom-line approach regarding their smart city developments. I had hardly ever come across this language in my discussions with private industry.

Having said that, the tide is turning. Private industry has now been talking with cities for several years regarding their options to assist them in building smart cities with the aim of selling their ‘smart city wares’. In general, many of these companies – especially American-based multinationals – haven’t got very far, since their own business models don’t match the ones that the cities use. Some involved in the most pure form of the Anglo-Saxon model have actually left the market or significantly scaled down their operations in this segment, as their activities didn’t deliver the shareholders value they were after. Their model still largely depends on the next quarter’s results and this doesn’t fit the smart city model, which looks at results over much longer periods.

Cities and communities operate at a very different level. They need to deliver to all of their stakeholders, who in turn are all citizens of their communities, and in doing so they are not profit-driven. Happy citizens mean a well-functioning city in all aspects of life. The abovementioned happiness ratings also correlate with the high-functioning societies of, for example, Scandinavia. The companies that understand the need for a holistic approach to smart cities also recognise the need for business models based on the triple-bottom-line concept. This is not always easy as, while the people involved in smart cities within the companies selling smart city products and services might understand that message, the companies themselves might not yet be geared up for such an approach within their current business models. However in the Australian Smart Communities Association (ASCA) – led by some 150 cities and communities around the country – an industry board has been established of companies that do subscribe to this triple-bottom-line approach, and that are willing to place the wellbeing of the citizen central in their discussions with the cities to develop long-term sustainable business and funding models for the development of smart cities.

Coming back to the GSC3 trip around the country, it was therefore no wonder that the GSC3 approach towards smart cities (more based on the Rhineland economic model) totally resonated with the cities they visited in Australia. International collaboration within this model is therefore a perfect fit for the leading smart cities around the globe, all of whom are already working from that model. At the same time the alliance provides an example for other cities that still have a way to go in their journey towards smart cities.

And the good thing about cities is that they are very happy to share their knowledge, experience and insights with other cities around the world. This enables cities to learn from each other, sharing knowledge and insight, and even working together on smart city projects – each taking care of certain use cases within the project. This not only saves costs but also speeds up the implementation.

This video clip gives a nice insight from an Australian perspective into this international collaboration model.

Paul Budde

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No smart energy policy for Australia

My involvement in the Australian energy market started in 2001 when I brought the energy companies together in Sydney. At that time we were looking at utilising their infrastructure to assist the ailing competition in the telecommunications market that was dominated by Telstra, which at that point was unwilling to introduce residential broadband services to Australian users.

Within the alliance, called Utilitel, a range of telecoms-related businesses were initiated at that time.

But the big change came during 2006-2007 when climate change became the hot political topic of the day. Energy companies realised that in order to respond to this ecological disaster they would have to change their operations, as 30% of national carbon emission was directly linked to their operations.

The first action undertaken by what would become Smart Grid Australia was to petition energy ministers in COAG, urging them to use the smart grid, rather than smart meters, as a strategy. We used the analogy of promoting cars without having the appropriate roads. But our advice fell on deaf ears and the resulting disastrous rollout of smart meters in Victoria was a clear indication that a holistic national smart energy policy would be needed before embarking on any details.

At the same time there was internal resistance to such an approach. After all, saving energy would mean less income for energy companies. Perhaps the best example of this came from Basil Scarsella, at that time the CEO of ETSA, the energy distribution company in South Australia. I sat on a panel with him at the ENA Energy Australian conference in 2007.

There I participated on behalf of Smart Grid Australia, arguing for smart grids. Basil made it very clear that ETSA would not do anything without clear government policies and regulations. ETSA (now SA Power Network) is a privatised energy company majority-owned by Hong Kong-based Cheung Kong Infrastructure Holdings. Basil made it very clear that without a national policy his company would not invest in any significant new energy investments beyond their normal run of the business.

Things started to look up with the government announcing an Energy Trading System, as this was seen by countries around the globe as the best basic policy system for the future (and this is still the case).

Climate change, together with government leadership, meant that the energy companies’ communications interests changed from external opportunities for their network – such as public telecommunication services – to an internal strategy on how communications could assist them in modernising their infrastructure in order to become far more energy-efficient. Organisations such as Ausgrid (at the time Energy Australia) had indicated that a full-blown smart energy operation could deliver energy efficiencies between 30% and 40%.

The government of the day picked this up and in 2009 made $100 million available for what became known as the Smart Grid Smart City Project. A further $200 million was added to the project by direct and indirect private investment. The project included smart grids, micro-grids, integration of renewable and the deployment of an electric vehicles infrastructure. The geographic area covered Sydney, Newcastle and the Upper Hunter region (Scone).

The project would run for three years and would become the blueprint for a national approach to smart grids. The project was seen as one of the most significant smart grid projects in the world and gained international attention, especially as part of the project was that the data gathered would be made available nationally and internationally (this has happened and many organisations from around the world have received that information from the Australian government).

What, however, became very destructive was that while the federal government at that time launched its new policies the federal opposition undermined it by mischievously calling it a carbon tax system. Ever since then a bi-partisan political energy solution has eluded the country.

This was based, not on the national interest, but on party politics.

What also hasn’t helped the situation was the sometimes rather militant position taken by many people and organisations involved in the green movement. It is simply not possible in the short and medium term to replace all of our energy needs with renewables. This was used politically by the more conservative forces in politics to oppose anything renewable – resulting, for example, with leading national politicians bringing coal into Parliament to undermine renewable energy policies. Similar unhelpful actions were taken by senior politicians ridiculing wind energy. As a result we still don’t have a long term energy policy that let’s say over a period of 20-30 years would transform the Australian energy market to one mainly based on renewable resources.

In this already convoluted environment another disastrous policy was taken.

For more than a decade natural gas had been seen as another cleaner energy solution, and Australia is one of the largest producers of natural gas. But in its infinite wisdom the Australian government issued gas mining licences allowing the producers to export nearly all of that gas, with only a small proportion to be made available for Australia. Changing this policy now (as mentioned by the Prime Minister) will mean that Australia will have to buy back its own gas at prices significantly higher than customers in Asia are paying for it.

Despite constant warnings the organisation in charge of national energy management, NEM, together with the Australian Energy Regulator, have largely been asleep at the wheel. The NEM has belatedly mentioned that Australia is facing a national energy crisis as there will not be enough energy available for the running of the country. Where were these organisations a decade ago, to add their weight to the development of sound national policies?

Even now political disarray continues, with the Prime Minister plucking yet another rabbit out of the hat – an upgrade of the Snowy Mountain Hydro System. Something that came totally out of the blue, with no consultation with the country, the industry or the energy experts. Another ill-considered development in a non-existing national energy policy that is simply aimed at quick political scores rather than addressing the long-term national interest.

Paul Budde

See Australia smart grid reports

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Does Australia need a proper nbn?

Here we go again with more useless debates about whether the country needs a first-class national broadband network or a second-rate one; and again there are discussions around what other flavours of the multi-mix technology can we now add to it to strengthen the brew. By now we have lost most of Australians in this useless debate, and we are making very little progress.

Of course we need a first-class nbn, and that is what we would expect those in charge, both in government and in the nbn company, to deliver to the Australian people.

Rather than addressing the core of the problem those involved in these debates pick on certain elements; and often, yes, there are two sides to such detailed issues. But in this nitty gritty debate everyone involved misses the bigger picture – or perhaps deliberately avoids addressing it.

In such situations I have always argued for going back to the core – why we are building an nbn in the first place. Given all the government money spent, the answer has to be ‘in the national interest’, and if you dig deeper you get into the social and economic benefits we have been talking about for a decade (healthcare, education, national productivity, digital economy and so on).

So if we look at the nbn with the national interest in mind what sort of infrastructure is needed to deliver those national outcomes?

There is little argument about this from all of those involved in these endless debates. Such an infrastructure needs to deliver the following: capacity, robustness, security, low latency and ubiquity. Once we agree on this I think nearly everyone will say that the answer is FttH.

The real question then is how do we get there?

If we don’t build an infrastructure based on FttH we will get into trouble, and the endless arguments are a clear indication that the nbn in Australia is in trouble.  For example, looking at the patchwork nbn we are getting right now – because of its reliance on old technologies the mixed technology might work in one area but not in another; or better here and worse there.

Roughly a quarter of nbn users have complaints about the quality of their service. It could well be that one house has a perfect connection while the next one has an abysmal service. And there are many possible reasons for that, which sometimes makes it very hard for the nbn company to fix the different problems.

For national services such as e-health, education, government services, finance or business, a network with consistently good characteristics nationwide is necessary. If such an infrastructure can’t be delivered then the institutions that need to build those digital services simply won’t do it. It is a chicken-and-egg situation. So if you don’t build a first-class network you won’t create the supply, and when you don’t have a good supply of services you won’t get the demand.

However, it is totally wrong to then claim that because there is no demand Australians don’t need a proper nbn.

If, as Prime Minister Turnbull maintains, at this point in time we can’t afford such a network it would still be necessary to build an nbn with that end goal in mind – and to very clearly communicate the vision and provide the right strategies for it. So far neither the government nor the nbn company has provided such a vision or strategy.

Talking about money, building an nbn is one thing. Making sure that people can afford it is another. So, apart from the infrastructure characteristics that are mentioned above, an important inclusion in the business model of the nbn needs to be recognition of the reality that people will only buy what they can afford. So building any infrastructure that will result in unaffordable prices for the users is also not the right thing to do. The Government is the only one who can take the national economic and social benefits into account; commercial organisations can’t do this, as these benefits don’t show up in any financial format on their P+L.

Regrettably it appears that on both counts – proper infrastructure plans and the need for affordable services – the government and the nbn company, despite spending something like $50 billion, have failed to come up with the right solution for Australia.

Paul Budde

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We urgently need a new internet

Let’s be honest about it. Nobody – including those very clever people that were present at its birth – had the slightest idea what impact the internet would have in only a few decades after its invention.

The internet has now penetrated every single element of our society and of our economy, and if we look at how complex, varied and historically different our societies are it is no wonder that we are running into serious problems with the current version of our internet.

There are some very serious threats to the internet, the key ones being:

  • Cyber-terror and cyber-war
  • Cyber-crime
  • Political (government) interference (Russian and Chinese hackers, Prism, Stuxnet, etc)
  • Privacy intrusion (governments, Google, Facebook, Amazon, etc)

So far the reaction to all of this has been to create draconian regulations which will never be successful, because the internet was never designed to cope with such complexities.

The internet is now so critical to our society that we can’t afford to lose it and so we are beginning to accept the breaches, hacks and interferences, because the need to use it is greater than the concerns we have in relation to the abovementioned activities. This is creating very dangerous situations politically, socially and economically.

We have been somewhat  sheltered by the fact that over the last half century – in western democracies – we have had good institutions, both private and public, which in general terms have been addressing these negative outcomes with the good of all in mind.

While this is, in general, still the case it is not too difficult to see that populist regimes might have other ideas about what defines the ‘public good’ and that they will want to use the internet for their own purposes.

On the other hand, we see the more responsible governments increasingly being forced to intervene and regulate, as they are unable to get on top of the abovementioned issues. We know this is futile but they feel they have no other option.

Rather than following this path it would be much better to address the underlying technology issues of the internet. There is no way that we can avoid terrorists, criminals, and disruptive populist factions who will always look for ways to misuse the internet; but we can make the internet much safer than it is now.

Unfortunately however, the current internet cannot be fixed. So we need a new one.

My colleague Martin Geddes has written an excellent article on why the old net is broken and why it can’t be fixed.

It is not going to be easy to resolve this.  It basically means that, bit by bit, the old internet will need to be replaced by a new one. The good thing is that the engineers involved in both the old and the new internet know what this new internet should look like – in some places this (industrial) internet infrastructure already exists.

What is needed is the commercial and political will to start working on replacing the old with the new.

Based on Martin’s article a group of my colleagues have started a discussion on this topic. I am a firm believer that our industry will need to drive this new development, so we will have to create further awareness of the problem and at the same point the way forward.

There is widespread support for looking at RINA for both the strategic and the technological guidance that is needed. There is a good description of RINA on Wikipedia – the following is only the introduction to it:

RINA stands for Recursive InterNetwork Architecture and is a computer network architecture that unifies distributed computing and telecommunications. RINA’s fundamental principle is that computer networking is just Inter-Process Communication or IPC. RINA reconstructs the overall structure of the Internet, forming a model that comprises a single repeating layer, the DIF (Distributed IPC Facility), which is the minimal set of components required to allow distributed IPC between application processes. RINA inherently supports mobility, multi-homing and Quality of Service without the need for extra mechanisms, provides a secure and programmable environment, motivates for a more competitive marketplace, and allows for a seamless adoption.

As mentioned, I firmly believe that our industry has a vital responsibility to show leadership and ensure that our societies and economies get a better and safer internet than the version (Martin calls it a prototype) that we have now. The industry is starting this discussion which will hopefully lead to a safer internet for all.

Paul Budde

See also: BuddeComm Intelligence Report – Internet Governance, E-Security and Net Neutrality Insights

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The state of telecoms competition in Australia

After the rowdy 1990s and early 00s the dust did settle a bit on the competition problems that continued during that period – more than 20 Inquiries, many court cases and ongoing regulatory corrections.

The situation settled down somewhat with the arrival of a new CEO at Telstra, David Thodey in 2006. Subsequent changes to the telecoms market, along the structural separation of Telstra, also saw a more mature approach towards competition in the telecoms market.

However, it is still essential that we remain vigilant on this issue; while on the surface things have calmed down to a certain extent there are still ongoing concerns regarding the health of telecoms competition in Australia.

A key element here is the fact that, despite all the positive changes, Telstra remains the dominant player in the market. It received a substantial cash injection, worth more than $11 billion, through the deals with the government regarding the NBN. This gives the company the financial freedom to basically do anything it wants, and it has done so extensively – new IT infrastructure, mobile networks, Wi-Fi. Telstra is one of strongest financial telcos in the world.

But the reality is that the NBN didn’t proceed along the lines that were envisaged after new legislation was put in place in 2009 and 2010. With the Coalition government coming into power in 2013 most of that was undone and the present government’s version of the NBN relies heavily on the old network. As a result Telstra, being the company with the insight into and knowledge of that network, became even more powerful.

Furthermore it remained one of the most vertically-integrated telcos in the world (dominant in the fixed market, the mobile market and pay TV).

While, to its credit, Telstra has certainly become a far more responsible player in the market, offering great products and services and significantly improved customer services, the reality is that it remains the dominant player in the market. Its overall market shares still hover around the 60% and it is still taking 80%+ of the profits in the telecoms market.

Because of this – and certainly not because of unprofessional behaviour as was the case in the 1990s – we still need a regulatory regime that takes this reality into account.

A key element of that are the so-called ‘competition notices’. This provides the regulator with a powerful tool to ensure that Telstra stays within the rules, and if it doesn’t the regulator can slap a million dollar a day fine on the company for every day it defies an ACCC claim that it is acting anti-competitively. This is big money, even for a powerful company like Telstra, and it has helped greatly on the couple of occasions competition notices were issued. Basically what the result was that it brought Telstra to the negotiation table, solutions were found which were acceptable to both parties, and Telstra didn’t have to pay the fine.

The government is now proposing to revoke this regulatory tool, which would be the wrong thing to do in a market where Telstra is still so dominant. This is quite remarkable, since the only company to support this development is Telstra, while the rest of the industry is dead against it.

Why would the government want to do this?  If everybody plays a fair game within the competitive arena, Telstra doesn’t have to fear these notices, as in general it has proved itself to be willing to come to the negotiation table, and if not its competitors (each of them with much smaller market shares in the Australian market in relation to Telstra) have a powerful tool that allows them to get Telstra to the table if a serious competition issue arises.

It is important to foster competition in the Australian telecoms market and the competition notices have proved to be very effective in achieving this. With a faltering NBN ahead Telstra will undoubtedly be the major winner in the end game of the NBN, which will only make it more dominant, and so it is much better to keep the tools handy that allow the regulator to ensure that viable competition will remain a key feature of the Australian telecoms market.

Paul Budde

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