.
BROADBAND
THE
ONLY GAME IN TOWN
Twenty years ago
most of us were getting news of a wonderful new communications technology, which
was referred to as the “World Wide Web” and the “International
Superhighway”. We were told that universities in the United States were
already using this technology to communicate among themselves involving
enormously large and expensive computers. And we can all remember those
photographs of these machines which looked for all the world like a row of
household refrigerators with very large “reel to reel” disks on the door
with white coated scientists tending them.
At the time most of
us were still coming to terms with the new “Telex” machines, which were
replacing the PMG telegrams, and of course the PMG telegram boys.
We know now that
this new technology was no pipe dream and before too long the first, but
enormously expensive, "Personal Computers” came on the market. At first
they were curios but as promised found application in business and it was not
long before it was possible to connect these computers through what came to be
known as “dial-up technology”. From that point on we all remember the
technological advances and the speed with which they took place. It wasn’t
long before many school students had computers on their desks which were
infinitely cheaper and more powerful than the original “university
computers” and the connections between computers became faster and faster and,
incidentally, more and more marketable. In the meantime we hardly noticed the
death of the telex [as we had done with the telegram boys], as the new FAX
machine became a household item.
Following this
surge forward in connectivity, a plethora of supply and service providers came
upon the scene, raised billions of investor dollars often chasing truly tenuous
business plans. Naturally history repeated itself when the “dot.com” bubble,
developed by the increasing claims of the money to be made with the new
technology replicated the fate of investors in the South Seas ‘Bubble and
Tulip’ mania. This dot.com crash happened in the early 1990’s and while the
winners rejoiced and the losers bemoaned their loss [including many Australians
who purchased the Telstra T2 float] the technology had relentlessly moved on. By
the time we were out of the inevitable crash “dial-up technology” had been
challenged by a new “Digital Broadband” technology which came to be known as
“broadband” and personal computer development had more than matched the
challenge.
While all this
technology was simply dynamic, so were the increasing costs of the information
distribution system. Clearly by now the “copper land-line technology” was
substantially unsuited to broadband connections. While communications companies
connected the telephone exchanges with the new fibre-optic cable to replace the
copper wire, and cable TV companies had run fibre optic cable in some
metropolitan areas to market their television products it was not
enthusiastically accepted within the community. If we can believe reports, these
services have yet to make a real profit for the installing companies despite
their offering a computer broadband connection as part of the connection deal.
Variations of broadband technology, such as ADSL [Asymmetric Digital Subscriber
Linkage] and ADSL 2 have been effective stopgaps and, more importantly, can be
connected quite economically.
It is recognised
that Australia is falling behind in the type of new technology available in some
of the other advanced countries of the world and there is a real reason for
this, notwithstanding all the spin, and in fact the misinformation that is
foisted upon the Australian public by just about every interest in the
communications industry, including the Federal Government. To appreciate the
situation we now find ourselves in, it will be necessary to refresh our memories
of some reasonably recent Government history.
Some years ago the
Federal Government introduced “consumer protection” laws, which included
banning “collusive behaviour” between corporations and required companies to
compete openly in the market place. This competition, it was claimed, would
prevent monopolies taking over markets and so exploiting those markets and
consumers. So far so good! But then, after an inquiry, [and who promoted this
inquiry is another question] it was decided that Government monopolies should be
included in this free trade legislation. This means that Government monopolies
should be made “competitive” and open to competition. The government
agencies involved included those supplying water, energy and other
taxpayer-owned infrastructures, in fact all those businesses built up as
Government Owned Corporations [GOC’s], and paid for by taxpayers, but more
particularly by our forebears.
Included in this
group of agencies was of course telecommunications, owned and operated by the
Federal Government through the then GOC Telecom. Despite the fact that the
majority of the Australian public (taxpayers) opposed the sale of the then
Telecom [which had metamorphosed into Telstra] it was sold nevertheless or more
accurately partly privatised. In fact it is doubtful that the Government
“owned” Telstra as distinct from holding it as a public trustee, but
that’s all water under the bridge now. This of course brings us back to our
broadband discussion, but there is just one more divergence to go before we can
fully return.
As part of the
anti-monopoly legislation it has been decreed that companies that have major
infrastructure assets such as rail lines, port facilities, oil and gas
pipelines, communications cables and the like are required to share these assets
with competitors. Clearly a usage cost has to apply, but the question you would
have to ask is would you risk millions of your dollars to give a competitor a
leg up and vastly complicate your life. The answer of course is NO, but it
happens in Australia today. Just ask BHP Billiton about rail lines and port
access and the disputes that have gone on between Telstra and the Australian
Consumer and Competition Commission [ACCC] have been at times acrimonious vocal
and public.
Telstra’s asset,
or perhaps problem, is what is known as the “last mile” which in real life
means the Telstra copper line connection from the telephone exchange to your
property. The ACCC has decreed that Telstra’s “last mile” be made
available at a certain charge to other competing carriers and Telstra has
challenged this fee assessment and having set this down we can now completely
return to broadband.
For some time now
it has been recognised that what Australia needs to bring it into line with
broadband speeds enjoyed by some other advanced countries is what is called FTTN
[Fibre to the Node] technology which means simply replacing the Telstra copper
lines with fibre optic cable. Telstra is quite prepared to do this but with the
very large investment that will be required Telstra, understandably enough,
wants some enduring and substantial protection for its investment. After all
Telstra’s experience with the ACCC, at least in its view, has not been
encouraging. Were Telstra given this assurance then Australia would be up to
date in smart order. But this would put Telstra in an all but monopoly position,
and of course, not only is that what Telstra was before it was sold, we have the
problem of the anti-competition laws. The practical question as to whether or
not a country the size of Australia can afford anything but a monopoly
communication transmission entity is one that seems never to have troubled
politician’s minds.
However, to
overcome all these problems it would appear that an Optus-led G9 consortium
consisting of: AAPT, iiNet, Internode, Macquarie Telecom, Optus, PowerTel, Primus, Soul and
TransAct, has floated the idea that they could, and would,
build a parallel service to Telstra’s. Of course their project at this stage
appears to be unfunded but it would also appear that the new Leader of the
Opposition has indicated that he will solve this problem and put something of
the order of $4.5 billion (taxpayers-dollars) to assist the consortium with
their proposed project. Not that $4.5 billion will be anything like the total
cost of the project. Further more, absolutely no detail has been given as to
exactly how this duplication is to be achieved and to what extent, if any,
Telstra’s existing facilities would be involved.
So let us slip back
to business for a moment. There is such a thing called a “stranded asset”. A
stranded asset is one, necessarily expensive, that is built for a specific
purpose and suddenly the “purpose” no longer exists, or is greatly reduced.
The value of the asset under these circumstances is substantially reduced and
financiers are very well aware of this circumstance, as are all quality
managers. Given this, either Telstra or the consortium is going to have a
stranded or partially stranded asset at sundown. This is what Telstra is trying
to avoid and looking at the situation seriously Telstra is in the strongest
position.
Which seems to mean
that Mr. Rudd’s donation of $4.5 billion (taxpayers-dollars) to any consortium
is at worst a long shot non-achieving punt, or at best another hollow election
stunt, which for a change would be something of a break for us all. But
certainly Mr. Rudd should have a presence there and as gamblers would say…
broadband is the only game in town.
The remaining
problem for Mr. Rudd is that both the Government and Telstra have yet to play
their hands. What cards they hold will ultimately determine the winner.
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