End Of The Copper Monopoly


Faster internet. It’s something that nearly all Australians can agree would be a good thing — even those of us who do no more than check email, surf Facebook and pay a few bills online.

Why then is it so hard to build here?

That’s the question everyone should be asking after today’s astonishing decision by the Rudd Government to abandon its tender for the multi-billion dollar National Broadband Network and build it itself instead.

Kevin Rudd and Stephen Conroy announced the decision this morning. In a press conference, the Prime Minister explained that "none of the bids offered value for money". It’s a refreshing approach to tendering for government business, though one wonders if it is truly "value for money" that is motivating the Government. If this principle were extended to defence acquisitions, Australia might have saved billions of dollars worth of dysfunctional military hardware like the Super Seasprite helicopters.

The new network the Government is promising is a quantum leap ahead of what the old NBN tender would have delivered. The original NBN tender asked for proposals for a national network that would deliver a minimum of 12 megabits per second to 98 per cent of Australian homes and businesses, and was planned to use "fibre-to-the-node" technology.

"Fibre-to-the-node" is an older broadband technology. It describes a network where whizz-bang fibre optic cable is built only as far as local telephone exchanges. Broadband data would then still have to travel down the old copper telephone wires owned by Telstra for the so-called "last mile" between the exchange and houses.

The new network promised by the Government bypasses Telstra’s old network completely, with cable installed all the way to your home or business. It’s called "fibre-to-the-home" or "fibre-to-the-premises" (FTTP) and will deliver much higher speeds, as high as 100 megabits a second. This is real performance: enough to stream full-screen video and download MP3s almost instantaneously.

The new network will be a government-owned corporation. The Commonwealth will take a 51 per cent or higher stake, with stakes sold to other telcos and institutional investors at a size determined by the Government. With a budgeted $4.7 billion already in the kitty for the NBN, it will instantly become a large and well-capitalised corporation. Work is expected to start by mid-year on the Tasmanian broadband roll-out in line with the Tasmanian Government’s NBN submission.

This new "NBN Corporation" will sell wholesale "white-label" broadband to all comers, allowing retailers like phone companies and ISPs to buy it and package their own deals as they see fit. Once the NBN is rolled out, in five or more years, the Government will privatise the corporation, presumably with regulatory safeguards in place to prevent Telstra from simply buying the whole thing and re-establishing its monopoly.

The Government says it will cost something like $43 billion to build, which is an awfully large amount of money — roughly the same as the recent stimulus package. One wonders what the implications of this will be for the rest of Kevin Rudd’s prized infrastructure priorities.

So given the end result is so radically different from the outcome the Government asked for in its tender, why did Rudd bother to go through the RFP process in the first place? After all, as ACT tenderer TransACT has already pointed out, if the Government wanted fibre-to-the-premises, why didn’t it ask for it in the RFP? (TransACT wants compensation for the huge expense of the tender, believing the Government has been unethical. Good luck.)

The answer, of course, is politics. Telstra has played a hard game with the Commonwealth since its privatisation, fighting tooth-and-nail in the courts to keep every last vestige of its former monopoly. By calling for tenders for the NBN, Stephen Conroy adroitly manoeuvered the big telco into a botched non-bid. Once he had accomplished his apparent aim of humiliating and neutralising Telstra, Conroy appears to have had little further use for the tender process, ditching it altogether for a new model which will achieve the structural separation of Australian telecommunications by another means. Regardless, Sol Trujillo will ride off into a golden sunset long before then.

Not only will the new network sideline Telstra’s copper monopoly, it will also generate a windfall for a future Labor government five years down the track. Think of the election promises a future Labor government could afford after selling off an infrastructure asset of this size! In the meantime, Kevin Rudd gets to say "nation building" in every second sentence and paint his Government as can-do types who are fixing the mess John Howard left behind. It’s a masterstroke of political tactics, whatever you think of Conroy’s substance as a politician.

Is it any good for the country as a whole?

The answer must be yes — as long as the Government can actually deliver it. Businesses and households will get faster broadband. Australia’s gamers will finally enjoy globally competitive ping speeds with which to frag their international competitors. Hospitals, schools and universities will eventually acquire the ability to deliver genuine virtual services such as remote surgical consultations and online video lectures and tutorials. Australia’s multimedia and IT sectors will be boosted (although the days of DVD rentals might be numbered).

The great irony of this decision is that Telstra and Optus may now pick up most of the sub-contracted cabling work required for a project of this size, while the monopoly infrastructure remains — at least for a while — in public hands.

Ben Eltham is New Matilda's National Affairs Correspondent.