Thursday, 22 September 2011
Liberal-National Party Coalition
This is the first report of the Joint Standing Committee on the National Broadband Network, which is charged to produce a report every six months. Earlier in the year, the committee sought the agreement of the government to ensure that a report on the progress of the NBN build by NBN Co. was given to the committee in sufficient time to enable it to produce its report. No such report was given to the committee by the government or the NBN Co. in time to be considered for this, the first report. Nonetheless, the report was completed in accordance with the statutory requirements setting up the committee.
The government was asked when it would provide its first report to the committee. On 7 July, the two responsible ministers, Senator Conroy and Senator Wong, gave a commitment to the committee chair, Mr Oakeshott, that a report on the progress of the build and the rollout would be provided to the committee by mid-September. Mr Oakeshott responded with thanks and convened a meeting for 20 September to enable consideration of the report. The hearing was duly held on 20 September but no report was provided. We were told by Mr Quigley, the Chief Executive Officer of NBN Co. that a report of some kind had been given by NBN Co. to the government in August but the government had declined to provide it to the committee, and no assurances as to a particular date for providing that report to the joint committee have been given.
The government is treating this committee with complete and utter contempt. The NBN Co. is, for all practical purposes, unaccountable. The government chose to establish this massive, new government telecommunications monopoly, the largest infrastructure project in our nation's history, without doing any cost-benefit analysis, without ever asking the question: is this the cheapest, the fastest or the most efficient way of delivering fast broadband to all Australians? This scheme was apparently—and it has never been denied—concocted on the back of a napkin between Mr Rudd, the then Prime Minister, and Senator Conroy on a flight between Sydney and Brisbane. No proper analysis has been done, and the coalition's attempts to have this project considered by the Public Works Committee in the normal way were frustrated by the government and their partners, the Greens and the Independents.
The only mechanism for parliamentary accountability for this vast project is the joint committee, yet we have nothing beyond a few generalities from the NBN Co. There is no report and no detail. This is a venture that belongs to the Australian people entirely but the government is treating the representatives of the Australian people with contempt. The ministers gave an undertaking—their words, not mine—to produce a report for the committee by mid-September and then failed to do so. How can the committee do its work if the NBN Co. is not able to tell us what is going on and if we are not able to get access to any reliable information on their activities? These and other concerns of this kind have been raised by the coalition in this report. The report is, on any view, an inadequate document. It has to be an inadequate document because we have not been given the material to enable us to do a report. We are being held in contempt by the government and the NBN Co.
One of the remarkable features of the government's arrogance in respect of this matter—and, I may say, the NBN Co.'s equal arrogance—is a refusal to recognise that the approach they are taking is utterly unique in the world. There is no other country in the world where a government is spending so much money on broadband services and no other country in the world where a government is building a new telecommunications monopoly. And this is the feature of this project that is absolutely staggering: there is no other country in the world where a government is using legislative and financial power to eliminate competition with the fibre-to-the home network it is building. The hybrid fibre coax network, which passes 30 per cent of Australian households, is, by reason of agreements between the NBN Co, Telstra and Optus, to be decommissioned so that it cannot be used to deliver broadband services. The only justification for doing so—as we note in this report—is the financial position of the NBN Co. At page 68, in the coalition dissenting report, we note:
... Treasurer Wayne Swan and Communications Minister Conroy have explicitly conceded that—
the agreement to put the HFC network out of operation—
... was designed to boost NBN Co‘s revenue and take up:
"The Optus agreement to migrate its HFC customers to the NBN and to decommission its HFC network will provide greater certainty about NBN Company's revenue."
That is what it is all about. We need to be aware in this place that there is a very big debate going on around the world in telecommunications about the wisdom of fibre-to-the-home rollouts and around the world telcos are starting to rethink the need for fibre to the home and are questioning whether there is in fact the justification for doing so when there are cheaper and faster methods of delivering broadband upgrades, whether through fibre to the node—bringing the fibre further into the field so that the copper loop is sufficiently short to enable very-high-speed bandwidth to be delivered—by upgrading HFC networks or indeed by the use of 4G wireless networks, which are being rolled out now and which offer the promise of very-high-speed bandwidth.
I refer now to a very recently published report by one of the leading technology consulting firms in the world, Analysys Mason. They pose the question:
Is FTTH really the end game?
Even proponents of a steady, incremental approach to fixed-line access evolution tend to offer the caveat that 'FTTH is still the endgame', often on no firmer ground than it is obviously faster, therefore better, and therefore it is where networks will end up at some time in the future.
They go on to say, 'This deserves to be questioned.' They note that:
Willingness to pay extra for more speed or capacity appears to have dwindled to more or less nil. In a competitive market this means that additional access infrastructure capex has to be justified more often as defensive spend, and ROI increasingly depends on net ARPU—
that is, average revenue per user—
above what it would dwindle to rather than incremental ARPU. Investing in a zero-sum-game market is less attractive than investing in one with real growth.
What they are saying here is that increasingly the justification for doing fibre to the home is to defend yourself, if you are a telco, against competition from other methods of broadband access. The problem with that is that the fastest competition in terms of deployment is LTE wireless and they note that speeds are being marketed of up to 100 megabits per second. That puts wireless in a position, recognising its limitations—and we all understand that it is a shared medium—in a very competitive position. The proposition in favour of fixed line services of fibre to the home is that there is an insatiable demand for speed but around the world telcos, as this report notes, are not seeing that. They note here that:
And the universal experience seems to be that customers will not pay a material premium for very high speeds. When you look at the penetration of, say, 100-megabits-per-second services in this region, in Japan and Korea in particular, almost invariably the 100-megabit-per-second product is being taken up because it is either the entry-level product or because it is priced at effectively the same price as the entry-level lower speed. Where you do have tiered pricing—and this is true in Korea in particular—where you have, say, a 50-megabit-per-second service and a 100-megabit-per-second service which is $4 or $5 a month more expensive, the 100-megabit-per-second service is able to achieve only about a 15 per cent market share. Of course, what that is telling us is that the applications that make these very high speeds useful or desirable are not there. You can, of course, take the approach of saying we should just build out the capacity in the hope that in 20 years time the applications will arrive, but that is obviously a reckless approach to spending public money and also one that pays no attention to the time value of money.
So in this report Analysys Mason say:
The disproportionate spend on FTTH … is highly problematic, and may come to be seen as inappropriate use of capital in the emerging competitive environment.
I will conclude with another observation from this report:
The recent emergence in some markets of LTE mobile broadband will serve to encourage fixed operators to press ahead quickly.
The need to press ahead quickly, of course, speaks to the need to deploy fibre to the node, which can be rolled out very quickly compared to fibre to the home because there is so much less civil works involved. This is why HFC upgrades such as DOCSIS 3.0 cost, say, $70 per household passed, a tiny fraction of the cost of rolling out fibre to the home—and it can be done quickly. Analysys Mason go on to say:
LTE mobile broadband could function as an effective substitute to ADSL2+, and fixed operators need to differentiate. However, LTE will take less time to roll out than FTTH and therefore fixed operators need to act fast.
So here we are in Australia, courtesy of this government, proceeding down the road to this huge fibre-to-the-home rollout, whereas in the rest of the world it is increasingly under question. It just underlines the need for a rigorous cost-benefit analysis and appropriate respect and accountability to this committee.