Broadband ... the only game in town

Twenty years ago most of us were hearing 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 machines which looked for all the world like a row of household refrigerators with very large “reel to reel” disks on the door and 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, enormously expensive, "personal computers” came on the market. At first they were curios but, as promised, they were useful 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: they 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 forwards in connectivity, a plethora of supply and service providers came on 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 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. Evidently 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 ran 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 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 compared to new technology available in some of the other advanced countries of the world: there is a real reason for this, notwithstanding all the spin and the misinformation 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 is 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 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 it was 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 a consortium of some 11 telecommunication carriers 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.