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TPG Telecom turns to mobile after fixed broadband investment blocked

TPG Telecom has acquired 2x10MHz of national 700MHz spectrum in Australia for $A1.26 billion. The unit price is approximately twice that paid by Telstra and Optus to acquire similar spectrum in 2013. TPG Telecom have announced they will spend an additional $A600 million to build a mobile broadband network to cover 80% of Australia’s population.

This development is no surprise. I wrote back in August 2016 that TPG Telecom, after being blocked by the Coalition’s crack down on competitive fixed infrastructure to NBN Co, would consider moving to wireless broadband. This would avoid the regulatory imposition to split wholesale and retail operations and also the NBN tax of approximately $7 per month flagged by the government.

The cost of this has been significant to TPG Telecom and in-directly to Australia’s telco consumers. The planned $A1.86 billion investment in wireless broadband will likely still only achieve relatively slow speeds compared to a fixed network investment. TPG will have effectively 40MHz of spectrum in capital city areas (20MHz in 700MHz band and 20MHz in 2.5GHz from an earlier auction). This will be sufficient to provide good mobile broadband speeds. More competition in mobile is a good thing for consumers but Australians already receive some of the best mobile broadband services in the world.

 

 

 

 

 

 

 

 

 

 

 

However, this new investment comes at the expense of investment in fixed broadband due to the Government’s desire to protect NBN Co from competition.

Australian fixed broadband customers will continue to rely on NBN Co which has steep financial mountains to climb in order to pay back the Government’s equity and debt investment. This is leading to higher prices for fixed broadband at slower speeds.

The Government has achieved a windfall price for the spectrum it has sold to TPG Telecom. But a win for the Government coffers is a loss for consumers and taxpayers who have missed an opportunity for private investment in fixed broadband.

This is all while Australia slips further down the international broadband rankings.

 

 

Australia’s Broadband Experience – A Case Study in how Government Broadband Policy can go horribly wrong

I was given the opportunity at Broadband World Forum Asia (in Hong Kong on 11-12 April) to present some of my views on Australia’s Broadband Policy disaster.

It seemed to provoke lots of good questions and interaction from the audience.

Telecom Times published the piece below – the full article is available here.

The presentation is available below.

 

Vodafone’s call for Gigabit Society applies equally to Australia

The Vodafone Group recently commissioned a paper on the benefit and need to develop a Gigabit Society based on Fibre to the Home (FTTH) and 5G networks.

The paper, prepared by consultancy firm Arthur D. Little, provides a strong justification of why deep fibre networks are required for the fixed and mobile broadband services of the future.

However the foreword by Markus Reinisch, Group Public Policy Director of the Vodafone Group, provides a very compelling call to action for European policy makers.

This call to action applies equally to Australia’s politicians and broadband policy makers. While NBN Co is focussed on rolling out its Multi Technology Model until 2020, Australia needs to think deeply about the next phase of investment in deeper fibre networks to support fixed and mobile networks to support the Gigabit Society.

The foreword, with highlights of particular points relevant to Australia, is reproduced in full below.

Why Australia’s internet is so slow?

In this recent YouTube clip the Australian’s Business Editor, Chris Kohler, puts forward three reasons why Australia’s internet performance has dropped to 57th in the world behind even Kazakhstan (see Akamai’s Q3 2016 State of the Internet report).

The reasons can be summarised as follows :

  1. Australia is a big country with lots of remote and isolated communities.
  2. Australia has reasonable infrastructure already unlike others that are starting from scratch.
  3. Australia’s internet companies are on an investment strike waiting for the NBN.

These three reasons are no more than convenient myths.

The core reason is vested interests are protecting their long held dominant positions and government policy that has entrenched these positions rather than promoting competition to promote investment in new technologies.

New technologies have driven huge change in telecommunications infrastructure around the world. In Australia we have embraced mobile technologies through infrastructure competition between mobile carriers.  The result is Australia is one of the best served nations in the world for mobile broadband. For fixed broadband it has been a sad, sad story of vested interests conspiring with government to protect their positions.

My blog has plenty of articles outlining these issues.

But let’s take each of these “reasons” stated by Chris Kohler and expose them for what they are – convenient myths.

Myth 1 – Australia is a big country with lots of remote and isolated communities

There is no doubt Australia has a big land mass and lots of remote towns and farms. When compared to Singapore and Hong Kong it understandable this will be taken as a reason why broadband is better in these “city states”.

However, Australia is also one of the most urbanised countries in the world. According to Wikipedia, Australia ranks 23 of 203 countries with 89.4% of the population living in urban areas. This compares to the United States ranked 41st (with 82.4% of population) and the United Kingdom (with 79.6%). Despite these higher rates of urbanisation the United States (global ranking of 20) and United Kingdom (global ranking of 28) have far better internet speeds.

But the best comparison is Canada with extensive social, economic and geographic similarities to Australia. On the urbanisation rankings Canada sits at number 43 with 80.7% of the population in urban centres (so significantly less urbanised than Australia) with a global internet speed ranking of 30 (significantly higher than Australia).

In fact Canadians experience average peak downloads speeds of 62Mbps compared to Australians who get only 46.9Mbps on average.

Furthermore, 52% of Canadians achieve better than 10Mbps average download speeds while only 28% of Australians reach this level of broadband service.

In short geography is not a compelling driver for Australia’s broadband experience. In fact being one of the more urbanised countries means Australia should in fact find it easier than many other countries to achieve better fixed broadband rates.

Australia’s mobile networks operate with the same geographic constraints but as stated earlier Australia has some of the best mobile broadband performance in the world.

Myth 2- Australia has reasonable infrastructure already unlike others that are starting from scratch.

This myth seems to be in the excuses list to overcome the embarrassment that some developing countries are achieving better internet performance results than Australia.

Countries such as Romania, Kazakhstan, Latvia and Slovenia are seen as countries that have “leap-frogged” older investments in copper telephone networks.

However, this myth does explain how this is an advantage. The cost of building new fibre cabling networks in countries without existing infrastructure is likely to be higher. New duct routes, poles and central office sites have to be built from scratch rather than repurposed.

The advantage may be that these countries have more incentives to improve their infrastructure to “catchup” to more developed countries. But this not a reason for Australia’s worsening internet performance rather an exposition of Australia’s lack of urgency when it comes to maintaining its international digital competitiveness.

This myth highlights more clearly than the others that Australia’s vested interests are not motivated by Australia’s international rankings but rather maintaining their current dominant positions in Australia’s telco landscape.

Myth 3 – Australia’s internet companies are on an investment strike waiting for the NBN.

This myth actually has some truth in it. Australia’s telcos are not investing in fixed broadband infrastructure.

But this is because the Australian government is actively discouraging investment. The previous Labour government put in place legislation that would force builders of new fibre networks aimed at competing with the NBN to offer their services on strict regulated wholesale-only terms.

After the change to the Coalition government in 2013, in response to the competitive “threat” from TPG Telecom, the government extended these mandatory provisions to all existing broadband networks (except those being sold to the NBN) and has flagged a new levy to be paid by all competitors to NBN Co for high speed broadband services.

In reality there are significant amounts of private investment that are ready to deploy more fibre based broadband to Australians – but the government is actively regulating and taxing to protect NBN Co from competition to presumably maximise its value under any future privatisation.

So there is indeed an investment strike – but it is because the government is regulating any investment to be non-commercial not because the NBN will meet all future consumer demands.

Summary

So there you have it – the myths about Australia’s growing broadband deficit will continue to be espoused by the vested interests while Australia falls further and further behind the rest of the world.

The NBN investment, in VDSL and DOCSIS technologies, will improve the situation. But after the rollout of this investment in 2020, Australia will have effectively caught up with what the majority of the developed world had achieved in 2010.

We will still be 10 years behind and wondering how we are going to fund the next tranche of investment so this does not blow out to 20 or 30 years over the next few decades.

 

New NBN tax great for mobile carriers and pulling forward 5G investments

The Australian government has decided to levy a “tax” on competitors to it’s fully owned wholesale broadband company – NBN Co Limited.

As reported in the ITNews this will mean NBN Co gets a subsidy of $40 million to $60 million per year from its competitors to compensate for its loss making obligation to provide fixed wireless and satellite to Australia’s remote and regional areas.

The tax is actually called the Regional Broadband Scheme Levy which requires competitors to NBN Co fixed broadband offerings to pay $7.10 per service per month

This levy is yet another burden being placed on competitors to NBN Co. The Australian government has previously put in place tough regulations on companies such as TPG Telecom that announced plans to rollout competing FTTB networks and taken over existing broadband networks in Canberra, Geelong and Ballarat (see blog post – Is the NBN Co monopoly now safe?).

This new impost will require fixed broadband competitors to NBN to effectively compensate NBN Co for the “loss” of any monopoly revenue due to competition.

However, the more obvious purpose is to dissuade competitors from seriously competing with NBN Co. The end result will deter investment in fixed broadband infrastructure in Australia’s metropolitan areas and protect NBN Co’s own investment and boost its valuation for future privatisation.

The other major purpose is also clearly to benefit Telstra and Optus who will not have to deal with one of their main retail competitors, TPG Telecom, to obtain wholesale access to its broadband networks. This would only be necessary if TPG Telecom’s FTTB network grows to some significant scale and impacts significantly on overall broadband market shares. Currently the FTTB network is only targetting a build out to service 500,000 households or 5% of the Australian fixed broadband market.

The Vertigan commission endorsed a levy but only on the basis that its other significant recommendations to disaggregate or split up NBN Co were also undertaken by government.  It is clear Vertigan panel of experts were looking to create competition as a driver for investment in broadband. The government has now clearly given up on this line of thinking and instead looking to minimise its losses in any future privatisation.

As a result we are now heading to a future where NBN Co is privatised as Australia’s fixed broadband monopoly wholesale provider with no incentive to invest in future broadband infrastructure.

We have seen this story before when Telstra was fully privatised and allowed to keep Foxtel after winning the PayTV wars with Optus. With a fixed broadband monopoly it had no incentive to invest in further infrastructure. Sol Trujillo as CEO tried to lean on the Howard Government for broadband subsidies and the ACCC for regulatory relief to protect broadband investments without success. The end result was the creation of NBN Co itself by the Rudd Government to break open the log jam of investment in Australia’s fixed broadband infrastructure.

But today we have at least one loophole still open for investment. The regulations and levy will only apply for fixed broadband networks competing with NBN Co. Wireless broadband networks are exempt.

This is great for Telstra, Optus and Vodafone. They effectively can now look for technologies and investment business cases to by-pass and cherry pick the NBN. This will require fibre investment to install more cell sites around metropolitan areas. As licensed spectrum holders they will be able to use existing 4G and new 5G mobile technologies to “offload” traffic from the NBN – as very perverse outcome indeed.

Telstra has already announced plans to supply hybrid fixed and mobile broadband routers so it can leverage its extensive new investments in mobile broadband to potentially bypass the high costs of the NBN – see Telstra’s New Frontier Gateway Modem.

It will take some time. But by 2020, just as the NBN is being finished, expect Telstra, Optus and Vodafone to have found viable methods to by-pass the NBN, and its high monopoly priced services, for a growing percentage of Australian customers.

So the winners are likely to be the Telstra, Optus and Vodafone and their shareholders – the losers will be Australian consumers and taxpayers.

Consumers will be paying some of the highest prices for some of the worst broadband in developed countries.

Taxpayers will have lost money on their NBN investment because any new prospective owner will discount the price to buy NBN Co because of the threat from wireless broadband.

The one consolation maybe – but it is an expensive maybe – that Australia will be a leader in 5G mobile broadband deployments.

Unless of course the government closes the loop hole and captures wireless broadband networks in its expanding broadband regulatory and tax net.

I, for one, would not be surprised if that is not currently being suggested by NBN Co as it considers future threats to its monopoly business model.

 

 

News from 2016 Broadband World Forum in London

Last week I attended the Broadband World Forum in London. It was another great chance to take the pulse of what is happening in different broadband markets around the world.

I participated in a couple of events including an interesting keynote panel on “How We Can Prepare for the Demands of the Connected World”.

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I naturally pushed my standard line that competition between private telcos is the best driver for investment in deep fibre networks and if that fails then governments need to fill the gap with subsidies and direct fibre investment funding to keep economies competitive.

There was general agreement that private telcos will only invest if they can see a good return on that investment in the medium to long term. If not then investment will stagnate and customers will become frustrated and force governments to act.

My experience with both private competition models in Hong Kong and government funded fibre rollouts with NBN Co in Australia clearly illustrate the two different models. Unfortunately, the Australian model has been watered down to less fibre and more monopoly rules which will mean Australian taxpayers will still be on the hook for a significant investment in fibre infrastructure down the track.

I also did a presentation covering the very successful year Hong Kong Broadband Network (HKBN) has had on the back of our total embrace of Over The Top video with TVB and Le Eco.

On the panel directly after this presentation I put forward HKBN’s unique change from being an IPTV provider to a OTT partnering model and why this makes so much sense for a challenger like HKBN.

On the technology side the conference covered a wide range of themes in mobile, IoT, smart cities and the like.

On fixed broadband and the deployment of fibre it was interesting to see a general consensus that the networks need to be designed to exceed 100Mbps now and target 1Gbps for the future. In Hong Kong we have achieved this many years ago – 100Mbps in 2000 and 1Gbps in 2008.

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This continuing investment in fibre is not only important for fixed networks but also mobile with the new 5G network architectures relying on fibre backhaul to many more cell sites in the future. Nokia are predicting that the number of cell sites for 5G will grow a hundred fold (100x today’s 4G network requirements).

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This year, like last year, much was made of G.Fast as a technology that can look to smooth the migration to full fibre networks. Swisscom is leading the way with commercial deployments now during 2016.

In the UK there is significant pressure on British Telecom from government and competitors to improve speeds. BT’s wholesale network arm, Openreach, is planning to deploy G.Fast from street cabinets (not distribution points like Swisscom) to try and keep up. But Openreach’s CEO and the UK’s Digital Minister both called out G.Fast as an “interim” technology on the way to FTTH (see more at http://www.channelregister.co.uk/2016/10/19/matt_hancock/)

BT have announced plans for 2 million FTTH premises by 2020 and Virgin Media are targetting 1 million FTTH premises by the same approximate time. Another example of competition driving private telco investment in fibre networks.

Australia’s NBN also got a run with the project’s use of the full range of fixed broadband technologies (VDSL, DOCSIS, G.Fast, GPON, LTE and Ku-Band Satellite) being described correctly as unique to any telco in the world. The rollout in the FY17 financial year is all about building scale with a target increase of 2.5 million homes passed of which 800,000 will be using HFC DOCSIS technology.

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However, NBN as a government monopoly has no incentive to provide FTTH services unless the government directs it to build more. With the partisan politics of broadband in Australia this is unlikely to happen unless there is a change of government. As a result Australia looks like being the only developed market where government funds are being directed towards VDSL and DOCSIS rather than towards a full FTTH deployment for the foreseeable future.

All in all it was another great event to catchup on what is happening around the various broadband markets. And the word is next year’s Broadband World Forum will be in Berlin.

 

 

NBN Co push back on USO over Fixed Wireless

I just finished reading NBN Co’s submission to the Productivity Commission’s inquiry into the Universal Service Obligation. I broadly agree with the submission but wanted to expand somewhat on the question of whether the NBN Fixed Wireless is capable of providing a standard telephone service.

In my submission to the inquiry I make the statement that the NBN Fixed Wireless network can and does support voice services. A cursory read of NBN Co’s submission may lead one to the conclusion that the NBN Fixed Wireless cannot and does not support voice services.

“As described in Section 1.2, nbn has planned, designed and deployed its network outside its fixed line footprint to meet expected demand for broadband services. nbn‘s mandate has never been to deliver voice services in these areas, given Telstra’s contracted responsibility and funding for voice services” – see page 15 of NBN Co’s submission

This may be misread as meaning that the Fixed Wireless and Satellite networks do not support voice services. This is not the case. In a similar way to NBN Co’s fixed networks (FTTP, FTTN and HFC) both of these networks support different traffic classes for different applications. Traffic Class 1, in particular, is designed for voice services and is available on all access technologies.

NBN Co’s own website makes this quite clear as highlighted below  :

screenshot-www.nbnco.com.au 2016-08-04 16-05-54

As a result, RSPs can deliver voice services on the NBN Fixed Wireless and Satellite networks. The Satellite network, however as pointed in my submission and NBN Co’s, provides an inferior service because of the delay in transmission over the satellite link.

So when reading the NBN Co submission the above needs to be kept in mind – the NBN Fixed Wireless is capable of supporting standard telephone services.

NBN Co’s point, in its submission, is that the planning and costing of the NBN Fixed Wireless did not factor additional services being supplied over the Fixed Wireless network, especially for “voice-only” services (ie. where the customer does not require a broadband service).

It is the extra cost of providing additional Fixed Wireless services (including antennas, network termination devices) and meeting the service levels consistent with the Customer Service Guarantee that concerns NBN Co.

But the question for the Productivity Commission should be whether these extra costs for NBN Co are less than the costs of the USO subsidy being provided to Telstra. If they are then NBN Co should be funded to do take on this extra cost and Telstra should lose the funding. The net result would be a positive cost benefit.

Unfortunately NBN Co did not make this point. Hopefully the Productivity Commission will understand this and consider Fixed Wireless as a viable platform for the delivery of standard telephone services as per my submission. I am of the view that this could save considerable costs for taxpayers and USO levy payers.