Kevin Rudd surprised a lot of people this morning with the news that instead of contracting someone to build its National Broadband Network (NBN), the Government would take the lead itself.
The Government’s plan — to install optical fibre cable all the way to homes (also known as an FttH network) — sees us skipping the halfway point represented by so-called "fibre to the node" networks (FttN) which would have seen optic fibre reaching only as far as street cabinets installed around the country. Under that plan the old network would have been relied upon to carry signals the rest of the way into houses, thus reducing the network’s capacity.
The new entity overseeing the network will be called the National Broadband Network Corporation (NBNC) and be owned by both public and private interests, with the Government retaining a 51 per cent share.
This will arguably be the most ambitious infrastructure project ever undertaken in Australia and will be the most ambitious FttH network anywhere in the world.
The Australian Government is one of the few that understand the importance of broadband across the various sectors in a holistic way. This network is not just for high-speed internet and entertainment but, more importantly, for healthcare, education, smart grids, etc.
The $43 billion slated for the project also clearly indicates that the investment will go well beyond internet and broadband and that the Government recognises the need to use it to help develop the wider digital economy. This has the potential to set Australia up as one of the international leaders in this growing area. Rudd seems to appreciate the trans-sector approach that is needed to stimulate the digital economy.
The nature of the investment further highlights that it is an open network and the infrastructure will be made available on a wholesale level. This makes it possible to deliver that infrastructure as a utility — which, of course, is going to make access to the network very affordable to the end users.
While the concepts are right — mandating high-quality broadband and an open-access infrastructure — such a massive project requires sound planning and design, and that’s going to take time. The Government has foreshadowed two quick steps to get things moving. The first project will start in Tasmania perhaps as early as within the next few weeks, and the Government has indicated that it will also immediately start work on the backbone network. This is something that’s been in discussion for many years and work should be able to start on it rather quickly.
But the big work will require replacing the copper cables that are going into people’s homes with fibre. Examples from around the world have indicated that it is very difficult to build a business plan around this kind of infrastructure if it is just providing internet access — you simply will not be able to generate enough revenue from that to justify such a huge investment.
The Government is taking the sting out of this by basically guaranteeing the investment money for the project and also indicating the use of the infrastructure for other sectors, such as healthcare.
What this means is that (for example) healthcare providers can independently offer e-health services to all Australians over the network, without these people needing to have a paid subscription. Media companies could do the same if, for example, they want to finance their applications through advertising. So what is happening is that there won’t be a gatekeeper involved who clips the ticket of everything that is happening over the network.
The regulatory documentation accompanying the release doesn’t give Telstra any room to manoeuvre. The company can of course participate but must do so according to the rules the Government sets rather than exploit the monopolistic structure of its current vertically integrated service offerings.
Most current players in the industry have already indicated that they have no problems with this concept, so there is a good chance that some, if not all, of the players involved in the tender will become partners in the National Broadband Network Corporation.
An important feature of the arrangement is that it will lead to an open network, which will make it possible to offer content and service providers the basic infrastructure on a utility basis, paving the way for the development of the digital economy. In this way the FttH investment will deliver an economic multiplier effect that will benefit the healthcare, education, energy and environment sectors as well as digital media and internet providers.
These content and service organisations can now independently develop their own products and services without being controlled by a gateway-keeping, vertically-integrated telco.
The structurally separated model of the FttH plan will also allow the National Broadband Network Corporation to work very efficiently. Using infrastructure construction companies is the most effective way of building a network. This allows Telstra, Optus and the other telcos to concentrate on developing the intelligent structure on top of that, and this will deliver innovative new applications and services in the most efficient way, securing an affordable service for everyone.
Which leaves us with the last big question: What’s next for Telstra? While Telstra’s Next G network is certainly impressive and its cable network upgrade will also help it to move forward, it will be no match for this new state-of-the-art FttH network.
That company now has another choice to make. It can continue its obstructive behaviour and launch new court cases or — more hopefully — it may look at the business opportunities that are now available to it. It can work with the new corporation and establish working relationships within the new framework.
Overall, what the new plans are doing is providing a bigger cake — not just another telephone or internet network, but an infrastructure that will attract a large number of new services.
My research suggests that once the network is deployed, healthcare alone could represent 25 per cent of its traffic. Equally, given the right business circumstances, services related to education and energy/environment could take up another 25 per cent. Over time the traditional telecoms and internet services will only account for perhaps 25 per cent of the NBN.
This is not to say that these latter services will have shrunk in volume or revenue — rather it simply demonstrates the volume of additional growth that will be generated on this open network infrastructure.
There may be many steps along the way but the FttH is the final destination. Once fully deployed, the FttH infrastructure will deliver a service of 100 megabits per second, and who knows what else? We can only guess what might be possible in five or 10 years time.
And wireless broadband will be woven into all of this, partly to make sure that people don’t have to wait five or 10 years before a fully deployed FttH network is available to them, and partly because that technology is evolving rapidly too, and in less densely populated areas it will be able to deliver a service equal to FttH.
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