TECHNOLOGY SPECTATOR: An NBN warning bell from AT&T

The Coalition may be keen to follow the example of BT and AT&T to deliver its NBN vision but this approach is destined for failure.

Technology Spectator

The Coalition has provided further insights into its plan for the future of the NBN if they win the elections in 2013, with shadow communications minister Malcolm Turnbull promising to deliver a NBN in a cost-effective manner.
According to Turnbull, the delivery of this network will see NBN Co follow the lead of overseas players like British Telecom and AT&T.

"If you want to look at an example, BT offers… 76Mb/s down, and 19Mb/s up…That’s the same approach that AT&T took in the US… and it’s a proven one," Turnbull said.

The Opposition continues to pursue its policies based on the ageing copper and coax cable networks. Interestingly, AT&T and Verizon are both closing down copper-based networks and there is a worldwide decline – including in Australia – in coax cable broadband connections. Yet the Coalition believes that these old networks are the future for Australia.

I have argued on several occasions that these ageing networks still have some life in them and that they can be used in a transition phase. However, the only tangible details provided by the Coalition point to short-term, cheap solutions that are most certainly not going to future-proof the country’s broadband requirements.

AT&T's fibre experience

So let’s have a look at AT&T and how it's fibre experience relates to the NBN.

AT&T’s Fibre-to-the-Node network, branded as U-Verse, has been partially rolled out in 22 states. As the service is using the existing copper wiring it cannot offer more than 24Mb/s. Prices are at least twice as high as current FttH offers in Australia, while AT&T has also not been shy in making additional revenue from imposing caps and charging overage fees. Furthermore, the upstream speed is so slow that the company cannot deliver on its advertised promise that the ‘cloud’ is its next step, since this requires much higher upstream speeds.

Moreover, in most states AT&T’s various companies (the original Bell companies which merged into AT&T) had all committed to rewire entire states with fibre optics. They were paid billions of dollars per state to do it, yet failed to deliver on those commitments.

Meanwhile, even though the AT&T’s fibre optic networks were not built, the company was able to use the extra charges on phone bills to build out U-Verse, after which they privatised the publically funded networks they had upgraded.

AT&T last year announced that it would no longer upgrade the remaining parts of its networks to U-Verse standards: this decision effectively means that, at least for network upgrades, a minimum of 50 per cent of its geographical territories has been abandoned. In areas where U -Verse is available it does not match DOCSIS 3.0 capabilities since insufficient investment has been made in the last mile. As a result, many customers have turned to competing cable companies: AT&T lost almost 100,000 broadband customers in the second quarter of this year as customers in non-upgraded areas moved to cable.

If you thought that it could not get worse, the company also announced that it was closing down its DSL services – as part of wider plans to close down its copper wired networks. This would leave customers with no other option than to use the even more expensive mobile or satellite based broadband services.

So, looking at the AT&T example it is clear that by changing its strategy from FttH to FttN the company has indicated that it has no interest in long term, very high speed networks. The fall-back for some Americans is that they can use the equally expensive broadband services from the cable companies. This is basically leading to a totally unregulated broadband monopoly.

The fallacy of infastructure-based competition

If the US cannot get infrastructure-based competition going in a market 15 times the size of Australia, how is the Opposition intending to get infrastructure competition to work? When they were last in power (1996-2007) they tried it themselves with the competing networks of Telstra and Optus. This failed utterly.

America also tried this, with their 1996 Telecom Act that opened the US networks to all forms of competition. This resulted in a range of mergers and acquisitions, and led to a duopoly between a telco and a cable company controlling most of the American broadband market. Under the Act the companies were able to ‘close down’ the networks on the basis that there would be ‘inter-modal competition’ between the cable and phone companies.

This neutralised the two largest competitors at the time – AT&T and MCI. SBC bought AT&T (and subsequently changed its name to AT&T) while Verizon bought MCI.

This development led to a flow of reverse-progress – in the 1990s the companies made commitments to rewire entire states with fibre. These networks were initially open to competition, yet the US Federal Communications Commission was successfully lobbied to close them to competition. Following that win, AT&T decided not to roll out fibre, but copper instead.

So how does America get its future 100Mb/s or 1Gb/s? The answer, based on the current situation, is that it will not. AT&T took the money, and is moving it into wireless: witness its recent $US650 million acquisition of NextWave Wireless, which holds spectrum that could be used for mobile data services. As a result of this migration from fixed-line to wireless, the entire fixed infrastructure is frozen in an old model. Indeed, AT&T is goosing the wireless profits, emphasising increased profits from this sector while depressing the wireline side to make that appear less profitable (as it is, given the flight of DSL subscribers). This strategy suggests that they can more effectively argue to close down the landline wires they do not want to upgrade (or have not yet upgraded), claiming that they are unprofitable.

There are several adverse economic repercussions to this scenario, besides a lack of broadband competition. Less competition has resulted in higher charges for customers, while everyone receives comparatively slow, inferior broadband (especially upstream). This harms the growth in new technologies, from cloud to VoIP. It also harms low-income families since AT&T gets to harvest its remaining wireline customers. Other countries will be reaping the technological benefits, in terms of cutting-edge hardware and software, as new innovative services will be attracted to countries which have shown that they care about broadband and infrastructure, and have invested in them.

Obviously America is not Australia. For one thing the Opposition will honour the structural separation of the Australian telecoms industry. But rather than using AT&T as a shining example on how we should move forward it should set off alarm bells: we should be using it as an example on how not to move forward.

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