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U.S. Should Consider Logistics of Australian Broadband Plan

By 1 September 2010 7 Comments

I believe that it is only appropriate to start out this post by saying that I do not support government broadband expansion lest anyone be confused by the title.  Government broadband expansion is not something that we have supported at Digital Society either as you can both see in our Issue Statement on Internet,

Factories and roads are the infrastructure of the industrial economy. Broadband and Wireless are the infrastructure of the information economy. There is an important role for regulation and government, but government cannot keep pace with the pace of technological evolution. We believe in the moral and economic power of markets – genuine crowdsourcing – with government cautiously providing protection from harm and fraud.

And this position can additionally be surmised in posts like, The Era of Geek Pork Has Arrived.  Those of us at DS definitely understand that there is a proper role for government, but that investment and the development of networks is an area suited best for the private sector.

That being said, we also have to realize that we operate in the real world, and the application of our beliefs of the proper role of government is not always going to play itself out like we would prefer.  So the U.S. has a broadband expansion plan.  One that I don’t like, as I indicated for multiple reasons in a white paper I wrote on the subject last year.  But something that I have never understood is that if you are going to go ahead and have a broadband plan why do we continually hear about modeling that plan after Europe or South Korea when the geography of the United States and the demographic profile of the country is so vastly different.

If we as a country are looking at any model that is closest in proximity to what the U.S. is dealing with geographically and demographically it is Australia.  The Australian National Broadband Network will cost upwards of $43 billion AUS and take around 8 years to complete.  There are some negatives to the plan, but much of the logistical side of the planning is very smart and very common sense.

A few positives and negatives before moving on to the logistics:

Positives

90% of Australians will have Fiber-To-The-Home (FTTH) and have 100Mb downstream and 50Mb upstream connections.  (The other 10% will be covered by wireless and satellite; more on that later.)

The NBN will only operate as a wholesaler.  It will dig the trenches, run the lines, operate the backbone, etc, but traditional ISP’s will stay in place to deal with direct consumer sales.  Theoretically this implies an increase in competition because prices could potentially drop since ISP’s would no longer be forced to invest high dollars in certain areas of infrastructure.

Pushing FTTH theoretically “future proofs” Australian networks and would allow for easier improvement in the future.

Logistically the plan makes sense for the geography of Australia.

Negatives

One of the negatives I see with the National Broadband Network is that to achieve the plans goals, the NBN was essentially forced to purchase all of the Telstra network infrastructure.  Telstra, who is the largest Internet provider in Australia was originally a government owned entity that was privatized in the late ’90’s and early millennium.  Telstra believes that the future is in wireless and they have agreed to sell their entire network to the NBN for $11 billion and the rights to bid on precious LTE spectrum.  Some of the reason for the NBN plan and the purchase of the Telstra network according to the plan is that there is no competition.  Ironically instead of developing the NBN as a competitor, the newly created “government owned enterprise” simply bought out Telstra and the NBN will be the only major backbone.  Realistically there is just a trade of ownership of the major Australian backbone network being made and no additional competition being created.

Another negative to the plan is that Internet Service Providers in Australia will be forced to compete with each other via the “Competition and Consumer Commission”.  The problem with this is that a supposedly ubiquitous commission deciding what is and what isn’t competition and fair pricing stands a fair chance of not actually playing out in any other fashion than simply being a price fixing commission.

The cost is fairly high.  As of the 2010 Australian Census, the country claims roughly 22.4 million residents.  If we assume that all these residents are tax payers, that means that each resident is responsible for $1,919 AUS for the broadband build out.  And I believe we can also assume that many Australians that could care less about Internet access would probably select to keep their $1,919 if that had a choice.  This is money that they would not have to pay if private investment was solely backing broadband expansion and they never chose to use the service.

Another factor in the plan that bares some concern is that the NBN is a “government owned enterprise”.  What this means is that the NBN receives private investment, and at some point down the line it is assumed that it will bring in revenue.  If it did not bring it revenue it would obviously be difficult to get private investment.  The government will maintain a majority with a 51% ownership share with the notion that it will slowly sell off its shares after the NBN is established.  The downside to this is that a new administration years down the line may decide to change previous government decision making.  They could decide to re-invest or use more tax money to improve things.  The plan that currently calls for 100Mb connections may not be so impressive in 8 years time.  Therefore even the hint of the government being able to alter this semi-private enterprise does bring about risk to investors and tax payers.

Because the NBN will only act as a wholesaler and treat all ISP retailers equally, ISP’s no longer have the ability to develop their own unique contracts that would reduce costs to consumers.  All backhaul would be priced to all ISP’s at the same rate.  So realistically no company has a significant advantage over the other.  That does potentially create a good deal of choice, but that does not necessarily ensure competition.  This would be akin to going to the grocery store and on the shelf were 5 different brands of soft drink, but every single brand tasted exactly like Coca-Cola.  You would have a lot of choice in that situation, but there would be no real competition between those 5 brands, because taste is the competitive factor.  For the Australian, this means that ISP’s will likely be forced to start bundling services to gain advantages over one another.  Something that is not always considered attractive here stateside.

Deployment

The deployment of Internet infrastructure and connections to Australian homes is what I find to be the most common sense.  When you compare it to the thought process of the Federal Communications Commissions desire to force FTTH to every American farmer in the U.S. that may live hundreds of miles from a medium to large city it begins to sound ingenious.  But realistically it is in its essence simply rational.

The NBN plan does indeed call for 90% of residents to receive FTTH.  And this is most likely a good solution for the majority of Australians.  Roughly two-thirds of the population of 22 million residents live within the city limits of Sydney, Melbourne, Brisbane, Adelaide, Perth, Darwin, and Hobart Tasmania.  The other 8 million residents live in the suburbs of these cities, with fewer and fewer populating the country areas like the Bush and on into the Outback.

Most of those living in the suburbs will most likely fall into the 90% that will receive FTTH.  But unlike the U.S. Broadband Plan that calls for fiber to be deployed to areas that do not make sense for it to be deployed, the Australians will look to wireless and satellite technologies to fill the gaps.  Of the 10% of Australians not receiving FTTH, 7% will be provided access via wireless technology, most likely LTE.  The NBN calls for 20Mb down wireless connections with 100Mb bursts.  The final 3% of the population will have access to 12Mb satellite connections.

Things to Consider

  • Australia understands that the last 10% of unconnected Australian residents will be very costly to reach.  It has been estimated that to reach the last 5% (96-100%) could be 4 times as expensive than reaching the previous 5% (90-95%).
  • The U.S. claims to have reached 95% of residents and our government is trying to force wired access to the last 5% when Australia has found it entirely impractical to reach the final 10% with wired access.
  • Australia is putting $43 billion AUS towards this plan.  When converted to U.S. dollars that comes out to about $1,700 per Australian tax payer assuming all residents are tax payers.  Attributing this same amount of cost per resident in the United States would mean that a similar plan would run the federal government $551 billion dollars.  And don’t forget that Congress was trying to balk at the $7.2 billion that they appropriated in the stimulus plan in 2009.
  • Australia traditionally has had low bandwidth caps.  Even just five years ago while most Americans were enjoying unlimited bandwidth with their broadband connections, I was living in Melbourne, Australia and was limited to a 1GB cap per month via my Telstra connection.  The likelihood of seeing 100Mb uncapped connections is highly suspect.  Australians may enjoy these speeds, but they will likely be extremely expensive with low bandwidth caps or limited to high priced premium tiers.
  • 100Mb downstream will likely be restricted to local areas or at most only within Australian borders in order to minimize transit costs.  This is similar to Broadband Utopia in Utah who offers 100Mb service but degrades the connection to 10Mb when the traffic leaves the Utopia network to reduce transit costs.  This type of network management makes the most financial sense for both the network operator and the customer, but is something that would be looked down on by Network Neutrality proponents.

I feel wholeheartedly that broadband infrastructure deployment is something for the private sector.  In my white paper on the subject I predicted that government backed broadband expansion will inevitably lead to mandatory Network Neutrality regulation, something that I termed “Gateway Neutrality”.  And that is exactly what is happening with the NBN in Australia.  However, if a country does force a broadband plan into play, it needs to be suited to that countries needs and not simply a boiler plate plan.

There is no “10 Step Guide To Broadband Deployment”.  But a government can take a common sense approach.  I believe that as far as determining what works best for the population of Australia based on the location demographics of where Australians live the government is making good decisions and logical decisions.  Because location demographics in the U.S. are very similar to Australia, it makes much more sense for the U.S. to be looking at this model of broadband delivery rather than methods being deployed in Western European countries, Scandinavia, and South Korea.

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