Shadow Boxing

Ahead of his keynote on day one of the Broadband World Forum, taking place in Paris on 27 – 29 September, we speak to Malcolm Turnbull, the Australian Shadow Minister for Communications and Broadband on why he’s unhappy with the country’s NBN agreement.

You have made it clear that you want to substantially change the current National Broadband Network (NBN) deployment. Can you outline why you oppose the current NBN model?

Everyone agrees that all Australians should have access to very fast broadband and at an affordable price.

A more rational government, seeking to achieve that objective, would have undertaken a rigorous cost benefit analysis seeking to find the fastest and most cost effective means of achieving it.

Instead, the Labor Government, without any such analysis, resolved to build a completely new fibre to the home network to reach 93 per cent of Australian households and to do so by means of establishing a new Government-owned telecoms monopoly which would become the sole fixed line means of delivering connectivity to Australian homes and businesses.

As a consequence Australia is spending, or proposing to spend, more public money on broadband than any other country in the world. And whereas other countries seek to encourage facilities based competition, our Government has taken steps to eliminate it, even to the extent of paying Telstra and Optus billions of dollars to stop using their HFC networks, which currently pass 30 per cent of Australian households, for broadband and voice.

You also claim that the current NBN model fails to address the critical issue of helping to provide universal high-speed connectivity at affordable prices to ensure there is no ‘digital divide’ in Australia?

One would have imagined that for a centre left Government to spend over AUS$40bn on a broadband network, a key objective would be to lower prices for consumers—as it is perfectly clear that the biggest barrier to internet access is not technology or even geography but rather lack of income

And of course over recent yers we have seen dramatic declines in broadband prices thanks to intense competition and improved technology.

An overcapitalised government monopoly has both an incentive and the means to increase prices and no market discipline to ensure it does anything else. Were the HFC networks to remain competitors they would provide real pricing discipline, but they will be shut down so as not to compete with the NBN.

A recent access undertaking submitted to the Government regulator shows that the NBN Co wants to increase wholesale access charges by CPI plus five per cent a year for all but the most basic internet packages. This is despite the incumbent, Telstra, being forced to reduce access prices on its legacy network by seven per cent a year in real terms.

Many industry commentators have praised the NBN for delivering nationwide 100Mbps services and argue that the network “future proofs” the country – how do you respond to that claim?

The fact of the matter is that bandwidth is only of value to consumers to the extent it enables them to access the applications and services they desire. Around the world telcos have struggled to attract any pricing premium for the very high speeds available on FTTH because of the lack of applications around at the moment.

Indeed in many parts of the world—especially in Europe—the rush to FTTH is being rapidly rethought as technological enthusiasm gets confronted by commercial reality and telcos look to extract more value from their existing copper and HFC rather than deploying solely FTTH.

Can you outline your rival high-speed broadband policy?

If we win government an early move will be to seek advice from the Productivity Commission on the most cost-effective means of achieving national high-speed broadband— lthough we will have to consider their advice within the context of the contractual and legal constraints in place regarding the current NBN deployment.

In terms of the details of our own policy, for the 1.5 million or so Australians in remote or sparsely settled areas, our plan and the current NBN plan being deployed are actually very similar, using wireless and satellite to deliver services.

However, for the remainder of the network rollout our policy is substantially different to the current NBN model because we are looking to use a mixture of technologies, FTTN, HFC and FTTH in Greenfield rollouts, to deliver high-speed broadband services.

We think that it is hugely irresponsible to be effectively de-commissioning the entire current Telstra copper network and also removing the ability to deliver broadband over the HFC networks when this infrastructure could be used—with some additional investment—to deliver significantly improved high-speed broadband.

Telstra has already enabled its HFC network in Melbourne to deliver 100Mbps downlink speeds and Telstra—with the right regulatory framework in place—could extend that 100Mbps speed across the entire network.

We already know that HFC cable networks provide quality high-speed services in many highly advanced markets around the world such as South Korea and Japan—and yet we are proposing to pay Telstra and Optus billions of dollars not to use this perfectly operational infrastructure.

Using the existing infrastructure seems to be a reasonable suggestion but how do you propose that the networks are upgraded?

The New Zealand model provides a good template to follow and we would certainly be looking to invite private sector companies to deliver wholesale broadband services within the designated areas and to receive in appropriate circumstances a level of Government support which could be in the form of co-investment or subsidy.

Telstra obviously would be in a prime position to tender for much or all of this role, but in order to do so it would need to separate its customer access network and such separation would be most convincing to Government and to the market if it were in the form of a separate company as has been done in New Zealand.

Assuming Telstra did form a new NetworkCo, it would be a regulated common carrier, would not offer retail services and would not discriminate between access seekers.

The question of the structural separation of Telstra has been hanging over the Australian telecoms market for a long time, how do you propose to get Telstra to agree to separation?

In my own personal view a structural separation would be value accretive to Telstra shareholders, because the sum of the parts is more valuable than the whole. [The alternative is] another twenty years of fighting with regulators; the only people certain to lose from such a restructure would be the legal profession.

In other words I believe that the value of Network Co plus the value of Telstra Retail Co will be significantly greater than Telstra either as it stands or in an NBN world. This financial case can be augmented by setting the right policy incentives to undertake separation.