NBN – Where to from here?

A couple of great quotes can be used to sum up the recent Australian Federal election: the first one is a classic that Julia Gillard pulled out in her post-election speech last night from Bill Clinton, “The people have spoken, but its going to take a little while to determine what they said.” The second quote I like and the basis for this article in relation to the NBN is from that great American thinker, Axl Rose who poetically sang, “Where do we go now?” in the Guns’n'Roses hit, “Sweet Child O’ Mine”.

Scholars are going to dissect this election result and the campaign leading up to it in great detail for many years to come and good luck to them, they’ll find whatever answers they want to find and call it fact. The truth is, this kind of election result is like a “glitch in the Matrix”. Labor lost support from all but its most ardent constituents: the non-union Left went to the Greens and the swinging centre/right moved to the Liberals. The swing was big enough to bring down the Labor government, but because of preferences and some oddities in redistribution, who knows what’s going to happen. Again though, let’s leave that behind.

My attention is focused on trying to glean some understanding of what “the people” said about the NBN and how the parliament (both upper and lower house members of all stripes) should now act on this matter if we proceed with a minority government of some description for any length of time. Originally, in my piece about National Broadband policy, I put forward a proposition that we should simply hold off on the government’s massive expenditure until the country could better afford it. I questioned the government’s capability of successfully rolling out this plan, but go back and read it again, I’ve never once questioned whether or not we needed a National Broadband strategy – I think we do. I just believe it needs to address the problem affordably for everyone.

Before I start my analysis, let me say that by no means do I think we should take the popular vote and mash it together as some form of issue by issue referendum, but for the sake of this piece, I’m taking some liberties with the mood of the voters to infer a way forward. Effectively, I’m asking for a bit of license to find some sensible common ground, which is going to be necessary in this minority government situation if we are to have effective government.

Now that the matter has been put to the polls, here’s what I think the outcome should be. First of all, the internet filter is dead – neither the Greens nor the Coalition supported that nor did any of the minor parties, so we’re talking about 65% of the population. First up, bury that sucker in the deadpool and let’s never hear from it again – it was ill conceived, bad policy.

I do think that the majority of Australians want a strong National Broadband Network. I think we can infer that the majority of Australians want this network to close the gap between rural and urban Australians in terms of technology availability. That said, I don’t think the majority of people want the Labor party’s NBN either.

My solutions are these:

• If you’re going to be a bear, be a grizzly, so we may as well aim for Fibre-to-the-Home (FTTH). Effectively though, the NBN Co needs to rapidly deliver Fibre-to-the-Node (FTTN) and through tax policy and legislation, the last mile should be the responsibility of customers and the private sector;
• Continue with the plan to nationalise the Telstra copper network, open up the exchanges and pay them the $11b or whatever was agreed in the Heads of Agreement;
• We establish some Universal Service Obligations that work for both rural centres and remote regions of the country that commit us to delivering them great broadband services now and into the future;
• Instigate an immediate strategy to fibre up every single school, hospital, regional health facility and GP Super Clinic in the country within the next three years; and,
• Deliver a business plan for NBN Co which is publicly available takes into account the new requirements and is tabled before the end of the year.

Before I go into discussing each of those points and my thoughts behind them, I think the issue of Mike Quigley, CEO of NBN Co. and his blatant breaches of the Caretaker Conventions must be looked at. I don’t think there can be any doubt that Quigley breached the Caretaker Conventions on at least two occasions during the campaign: the first time when he announced the increase in bandwidth from 100Mbps to 1Gbps at EXACTLY the time when Labor were scoring points on the Liberals about the technicalities of the NBN. That was a clear foul, yellow card for Mr. Quigley. The second instance occurred when he derided the Coalition’s Broadband Policy. To me, that was even more flagrant because he openly criticised and chided a policy that he was personally in direct conflict of interest with. In football (soccer) parlance, that was a studs-up tackle from behind and should have been a straight red. So what do we do with Quigley?

He’s done a good job assembling a team of experts and by all accounts, the work they are doing in the planning and architecture phase is world class. He needs to be addressed because the Caretaker Conventions are very important, as has been highlighted by the result of last night’s election. However, if we’re going to proceed with this plan, we shouldn’t cut our nose off to spite our face. I think before any government is formed, Prime Minister Gillard should publicly reprimand him for his conduct, explain why she’s done so to the people of Australia and Mr. Quigley should apologise to the voters for crossing the line. Then he should get back to work with a slightly lower profile.

On to the meat and potatoes of my position and I’m going to tackle the points in a varied order from perhaps what they appear above. First of all, the Howard Government hurt the country’s telecommunications infrastructure with the way it privatised Telstra. That wrong needs to be addressed. Nationalising the core infrastructure makes sense in a country of such small population, but vast geography. The Universal Service Obligations were largely on the shoulders of Telstra, which was unfair for a publicly traded company to have to bear. NBN Co can now take over a modified version of the USO and all Retail Service Providers will have to have some responsibilities as well to ensure people have basic access like telephones and ’000′ services.

The next portion needs to be looking at the cost of this network and how we balance delivering great technology while being fiscally responsible. I think we need to deliver a hybrid FTTN and FTTH network in the short term, with a long term view (maybe six to eight years) that we’ll move to a full FTTH. As a priority, the NBN Co and Retail Service Providers should be surveying customers to find out which areas are most likely to have the highest levels of early penetration. We cannot have a system open to patronage and dirty politics – the people who most want and are willing to pay for the network should get it first.

The big cost on this NBN is the last mile and this is where the country needs to be clever about how it gets an outcome. Once the NBN Co becomes available at my nearest node, I should be able to contact any of the Retail Service Providers who wish to service my area. I should then be able to ask them for a connection cost, monthly access fee and a contract length. The cost of the connection is where some creativity needs to happen.

Some suggestions are that the NBN Co was modelling between $3000 and $4000 per household to connect in cost for the NBN. That’s not entirely accurate because it takes into account much of the infrastructure and isn’t the “last mile” cost. If you separate out the “infrastructure” and call that a required government expenditure, then what you are left with is just the last mile. If that were say, $1500 per household then that is a much more reasonable number. That number should also come down as penetration increases – for example, if running fibre to the demarkation point of my building costs $1500, then that’s done, the other sixty-seven tenants in my block of flats won’t have to pay that again because the fibre hits our demarkation point.

This is another point that needs to be better understood. Currently, Telstra’s obligation is to run services to a demarkation point on your property. That might be a switch box on the outside of your house, a comms rack in your block of flats or a telephone pole on the edge of your property. It is then your responsibility for the wiring and cabling of your property and I think this must be maintained for the NBN.

I believe this is where we need to get creative with tax incentives so that customers and the private sector fund the cash elements of the NBN to avoid the government having to borrow the money upfront. Take the issue of the $1500 cost to run from the node to the demarkation point of the property, to ensure flexibility of service provision this fibre needs to be owned by the NBN Co. You could have a scenario where if the resident wishes to pick up the cost of this themselves, then it is 100% tax deductible in that financial year. You could have a scenario where maybe the Service Provider pays for the connection on behalf of the customer if they sign-up for a three year contract. You would then allow the Service Provider to write the connection cost off in the same way you would an individual taxpayer, but you’d end up with the Service Provider’s fronting the cash for the connection.

The next piece of the puzzle is a bit complicated and that’s in relation to the work required within a property to “fibre up” the premises. This is going to require tough regulation in my view and good tax policy again. First of all, one need look at strata units. Unless the strata committee approves the onsite expenditure, then you can fibre up to the demarkation point all you like, but it won’t go any further. I have an elegant solution for this. Alter the Universal Service Obligations so that the moment fibre is available to the demarkation point of a property and a resident requests access, within twelve months the strata owners must ensure the completion of the work. Failure to comply would result in penalties that would make it worth complying with. Again, you can make the onsite work 100% tax refundable to property owners, tenants and strata companies.

The last part would be the stragglers. I would set a hard retirement date for the copper network in say eight years. In the first five years you allow the demand side economics take care of driving adoption, I’m fairly certain this would be successful. In the final three years you begin to impose punitive levies on property owners that do not comply because ultimately the government, through the NBN Co is going to have to wear the full cash cost of providing the last mile coverage. The government must make it so financially unattractive for property owners that they would certainly opt-in – along the lines of what the government does for people on high incomes to ensure they take out private health cover.

I think it is a no brainer that the NBN Co needs to get out there right now and start running fibre now to schools, hospitals, GP Super Clinics and any large government health facilities in rural Australia. That’s an infrastructure leap we can afford to take and one we should take. While I believe our roads, hospitals, power grids and water facilities have all been neglected, that’s no reason to ignore our telecommunications infrastructure needs to these key service facilities across the country. This is a cost we just must incur.

The final part of my plan that needs the most work is around rural areas. Having an economic rationalist argument about the value of rural Australia is a moot point – there are plenty of people living in non-urban centres and they are citizens, they’ve spoken and they’ve requested faster broadband access. This is where Quigley and his cohorts need to get creative and use technology well. I think firing off very expensive satellites to establish footprint with an endless supply of government money is the wrong approach. While the plan of tax incentives and tough policy will get 85% of the country in the urban areas over the line, it is not feasible to apply the same strategy in rural Australia. The best answer, let’s commit to providing our fellow citizens in those areas great service, they need to accept that it must be at a reasonable cost and let’s agree a timeline that gets it done within two full terms of office.

For me, there are two things that I’d like to see addressed. First of all, undersea capacity to the US and Asia. I think the NBN Co must as part of its mandate undertake to do something about this. Australia is an island, telecommunications connects us to the rest of the world, if we believe it necessary as a people to have our core telecommunications infrastructure owned by the government domestically, then surely it must follow that our global interconnectedness should be owned similarly. I think we can save enough from having the customers and private sector underwrite the cash component of the last mile to wear the cost of proper set of redundant undersea connections to the rest of the world.

The second issue is usage charges. I firmly believe that if our government and we as taxpayers are going to underwrite this great endeavour, then we need to legislate, unequivocally and for all time that uncapped usage is the rule. If we are paying for 100Mbps connectivity to every home, school, hospital and clinic in the country, then the users should be able to use 100Mbps at all times, 24 hours per day, 7 days per week. If the Retail Service Providers don’t like it, then they can build their own infrastructure, at their own cost.

My feeling is that this is a better plan. It gets the core infrastructure in place at a cost that should be lower than what Labor are suggesting. It shifts much of the cash burden to the private sector and the retail sector. The tax incentives can be tweaked so that high income earners or largely profitable companies don’t see a full deductible, whereas low income families and small business could avoid the cash components through a rebate scheme. I think we need to codify our resolve to our fellow citizens in rural Australia that we’ve heard their demand for faster broadband and we commit to delivering them the best we can, in a reasonable period of time at a cost we can all accept.

This “glitch in the Matrix” provides us with an opportunity. We have a chance to stop the “government of opposition” and have parties of all stripes work together on an issue to deliver not what is politically expedient or advantageous, but to deliver the people what they want and feel they need. The National Broadband initiative is an opportunity to see if we can manage a more evolved form of government where people can elect the representatives that represent their ideological views, but with the knowledge that the country will be governed in a non-dogmatic way and with greater participation.

Tagged as: Broadband, Mike Quigley, NBN