NBN BUZZ: Conroy's tough talk

NBN Buzz is a weekly wrap up of everything that's going on with Australia's largest infrastructure project. For previous editions visit our NBN Buzz page.

Time for a reality check

Communications minister Stephen Conroy may have let his enthusiasm get the better of him at the National Press Club address this week but leaving the F-bomb faux pas aside he certainly put on a good show, with his opposition counterpart, Malcolm Turnbull, and the Productivity Commission both copping a hefty serve.

Conroy's speech was particularly well timed given the government's attention really does need to shift towards spruiking the benefits of the NBN and it's a point actually raised by the Productivity Commission report, which has subsequently sparked a renewed bout of political sabre rattling.  

The report came into being at the behest of small fibre operators specialising in builds in new housing estates – OPENetworks, Comverge Networks and Service Elements – with the trio alleging that NBN Co was in breach of the competition neutrality rules. Their biggest gripe was that NBN Co's aggressive entry into greenfield sites was undermining their business and that the company's government funding and its low expected rate of return would give it an unfair advantage. There were also a host of other claims, all of which were largely brushed aside by the commission. To be fair, NBN Co has received a passing grade here, the only problem is that modest 7 per cent rate of return mandated by the government and the timeframe for achieving that rate of return. According to the Commission's report, both aspects represent “a potential ex ante breach of competitive neutrality policy”.

The government maintains that the rate of return is acceptable given the social benefits of the network and the fact that it will deliver service to households that would normally be ignored by the private sector. The commission suggests that if that is indeed the case then it needs to provide a clearer picture of the cost and benefits of meeting those obligations.

 “The Australian Government should arrange for an analysis of the nature and magnitude of the non-commercial benefits required to be delivered by NBN Co. On receipt of the analysis, the Australian Government should put in place accountable and transparent community service obligation funding.

“To comply with competitive neutrality policy, NBN Co would need to adjust its pricing model by taking into account funding by the Australian Government for its community service obligations and would need to demonstrate that the adjusted pricing model is expected to achieve a commercial rate of return that reflects its risk profile.”

 This call for a cost-benefit analysis certainly got under Conroy's skin, who not only labelled the view narrow minded but also accused the commission of being out of touch with reality. According to Conroy, the commission was working under the false assumption that there was “perfect competition” in the telecom market and that the private sector was going to deliver a more cogent broadband solution.  

As an independent advisory body, I would suggest that the Commission has done the job it was required to do and its report really doesn't raise the same level of alarm that the shadow communications minister would have us believe . However, that didn't stop Conroy from taking the Productivity Commission to task. Economists may not appreciate the minister's brand of humour:

“Three people on a desert island - a physicist, an engineer and an economist, and I've got a can of beans. How are they going to open the can of beans before they starve?”

“The physicist suggests we build a fire, eventually it will burst open. The engineer devises a way to cut it open, the economist starts off and says: ‘Lets assume we've got a can opener'.

Welcome to dealing with the Productivity Commission.”

But he certainly puts on a good show.

Missiles for Malcolm

Taking pot shots at economists is one thing but the real fire in Conroy's speech was reserved for his supposed nemesis Malcolm Turnbull, with many a missile lobbed at the Coalition's broadband policy. What was noteworthy about the display was Conroy's systematic approach to tearing down the technical pillars of the policy. It's the sort of stuff we haven't seen from Conroy and it's about time the government tackled the Coalition's broadband alternative head on. There was no beating around the bush and the Coalition's planned use a mix of technologies, including a ''fibre to the node'' network, came under a withering attack.

"Mr Turnbull is offering three technologies: FTTN, HFC and wireless. All of them are limited in their ability to provide Australia with the broadband we need," Conroy said.

According to Conroy, FTTN is never going to deliver the same sort of speed that FTTH would deliver, HFC is a dead end solution plagued with congestion problems and wireless is going to play a complementary role at best to meet the nation's future bandwidth needs.

Armed with an arsenal of charts and quotes, Conroy not only dismantled Turnbull's three pronged approach but also attacked the costing of  the plan, arguing that his opposition counterpart had muddled up capital expenditures with operating expenditures.

''He is planning a network that will be obsolete by the time it is built. He will leave us stranded and locked into today's speeds.''

Mind you, the minister recently hired respected telco expert David Havyatt as an adviser and I suspect he has had quite a hand in the technical chutzpah on display by Conroy.

Staying alive

Now, there is an argument that some of the elements of Turnbull's plan can deliver a worthwhile broadband service, possibly at a lower price tag and just when you thought Conroy had delivered a telling blow to cap off 2011, the shadow communications minister has received a hand from a trusty ally.  The assistance has come from UK-based telco consultancy Communications Chambers (CC) which overnight issued a paper that takes aim at some of Conroy's assertions. The fact check, first reported by Delimiter, was issued by CC co-founder Robert Kenny, and points out a number of discrepancies in Conroy's argument. 

According to Kenny, FTTN is a valid alternative and is receiving widespread investment from the likes of Alcatel Lucent and British Telecom; HFC technology can and will counter congestion problems and NBN Co itself has acknowledged the use of node splitting technology to support speeds in excess of 100 Mbps. Finally, there is also a bit of finger pointing towards a number of false assumptions about growth, speed requirements and benefit assumptions.

Turnbull has used CC's reports in the past, so it's no surprise that Kenny's fact checker is a solid manifesto for the coalition's plan. There is also nothing there that an ardent NBN naysayer is already not aware off and NBN supporters can no doubt come up with a number of counter arguments to plead their case. However, the release of the paper is a godsend for Turnbull, who was at risk of losing all momentum after Conroy's calculated attack. Kenny's argument provides the necessary technical retort to give Turnbull's plan some succour. The question is whether the shadow communications minister will use this as an opportunity to finally present a more comprehensive picture of his alternative. 

NBN Co's $11 billion waiting game

Senator Conroy's vigorous display would have been appreciated by NBN Co because the events of the last seven days have not exactly gone to plan for NBN Co boss Mike Quigley.  The December 20 deadline for the $11 billion deal with Telstra has now been extended and the wireless non-promotion clause sought by Quigley has been shown the door by the ACCC, which was squarely in the heart of the action. The regulator has welcomed Telstra's revised Structural Separation Undertaking (SSU), but the final tick of approval is still missing and will not come without an inquiry into the Wholesale ADSL market. The ACCC flagged its intention to review Telstra's dominance of the wholesale internet market after ACCC boss Rod Sims said the negotiation process with the telco had highlighted outstanding concerns in relation to the services.  The inquiry is all that stands between Telstra and its $11 billion deal with NBN Co and while Telstra will not welcome the potential price cuts to wholesale broadband services, it's an outcome it is expected to live with. Telstra can do that because it's pretty confident that even with the cuts it is still on the winning side of the scorecard, as for NBN Co this is a delay it could do without.  A final decision from the ACCC on Telstra's undertaking is expected in February and with the likes of Internode, iiNet and Optus all expected to engage in a healthy consultation process Quigley will be hoping that a final approval doesn't get bogged down and NBN Co can finally get its hands on Telstra customers.

With regards to the rejected wireless clause, the demand was pretty flimsy to begin with and the regulator has rightfully given it the boot. Telstra and Optus can now market their wireless services provided they stick to the Trade Practices Act, and steer clear of launching ads claiming wireless to be faster than fibre. Conroy made it clear in his speech that he is standing by the projections that only 13 per cent of households will avoid the National Broadband Network (NBN) and go with wireless broadband connections. The original clause was clearly anti-competitive so it's good to see that NBN Co has decided against pressing on that particular issue.

Visionstream gets to work on transit network

Finally, NBN Co has awarded networking service provider Visionstream Australia a $19 million contract to build the first stage of the transit network that will form the backbone of the National Broadband Network. The transit network will serve as the conduit which connects NBN Co's central hub to the fibre access nodes (FANs) and the first stage of the build will involve the construction of 149 transit links connecting 168 FANs, 30 of which will also serve as points of interconnect (PoI). The overall project will see 121 PoI build over the next three years and NBN Co head of construction Dan Flemming said the transit network will allow NBN Co to connect the different FANs to points where the traffic will be transferred to service providers.

Elsewhere, there were deals with AccessTel Kentrox Australia (AKA), which has been selected by NBN Co to provide site management solutions for the broadband network across Australia, and Primus Australia gaining full accreditation to deliver both broadband and telephone services on the NBN, with CEO Tom Mazerski saying the company will now develop new voice-only plans as well as a selection of voice and broadband bundles specifically suited for its fibre customers.