It is somewhat disappointing that the last substantive communications decision handed down in the fourth term of the Coalition government is also one of its worst—the decision to give Australian Broadband Guarantee money to Telstra to install DSLAMs in regional South Australian exchanges that are already served by government-funded Internode infrastructure.

One would have thought that DCITA might have learned something from the backlash against the $958m taxpayer grant given to Opel Networks to provide coverage to effectively the entire country—an extraordinary situation that clearly has little to do with market failure or consumer need. Internode owner and CEO Simon Hackett was quick to criticise the government in a post to the Whirlpool message board on Friday.

“In the regions we operate in, in regional SA, there are 11 exchanges in that list that represent overbuilds of our existing regional wireless networks (networks which hold formal ABG approval to service for new customers as of now), and 3 out of that 11 have Internode DSLAM’s (sic) in them already, to boot!” he wrote.

“That means that Telstra have mislead (sic) DCITA about which exchanges don’t have ADSL in them already, and DCITA have failed to check their own records to verify those claims.”

Hackett continued: “Telstra published a large list of regional exchanges for deployment by March 07 ( a strangely familiar list of exchanges...) and then quietly removed them again, before doing the ABG negotiations - and now I’m sure they'll mysteriously build those exchanges very, very quickly - as if they had them all there ready for months, and just not turned on for political reasons. The whole idea is to expand access, not to have Telstra take a government handout to help them crush competitors by overbuilding them. Shades of FTTN.”

Of course, similar criticisms could be made of Opel but it’s unlikely that Internode and other similar carriers will be making them—Opel’s promised cheaper backhaul and expansive wholesale offerings may provide a net benefit to them in that it dramatically increases the viability of on-net regional coverage. But that said, Internode’s South Australian rollouts will be similarly affected when Opel switches on its network as will the investments of a large number of other regional operators, all undertaken with taxpayer subsidies. These include networks operated by the likes of Allegro, Amcom, Digital River and by my count, some 43 other ISPs and carriers in locations as disparate as Burnie, Tasmania; the Barossa Valey, Toowoomba and Bundaberg in Queensland, Kalgoorlie in Western Australia, Queanbeyan, Gungahlin, ACT and the NSW Southern Highlands.

The government spent hundreds of millions of dollars in subsidies for these networks and a casual flick through the websites of the various providers suggests that it all resulted in a substantial market impact. To use one of many examples, I can get a direct fibre connection to my home in Burnie from as little as $49 per month thanks to these legacy programs. That’s more than metro-comparable!

Reviewing the progress of Networking the Nation in 2005, the government said “NTN was designed as an application-driven, recipient-implemented program. This configuration was consistent with the policy—later articulated in the Australian Government’s 2001 regional policy statement, Stronger Regions: A Stronger Australia—of prioritising regional and community-based initiatives over more traditional, ‘top-down’ programs designed to deliver specific services in centralised ways. It recognised the advantages of local ownership of local initiatives and accommodated local differences in needs and priorities. At the same time, it could, and did, encompass projects that differed widely in nature, complexity, scale and operators."

It also did concede, however, that the outcomes were fragmented.

But in the end it concluded “the legacy of the program is a powerful one. Regional Australia has more infrastructure, more services, more use of services and smaller disparities with metropolitan areas than at the program’s outset. In many cases, the improvements have been dramatic. In most areas, expectations concerning communications services and their use have been transformed.”

Now, of course, the Connect Australia $958m and Australian Broadband Guarantee $168m commitment is everything that NTN and related initiatives weren’t.

It is very definitely top-down. It is very definitely centrally planned. There is very little that is community-driven about it. And as Internode alleges and the Opel maps clearly indicate, there appears to have been little consideration given to overlap with existing infrastructure.

There, is of course, some logic behind this new approach. A uniform, national offering such as Opel’s is easier to market, easier to quantify in terms of performance and return, and certainly superior in terms of achieving a goal of pervasive “metro-comparable” broadband than the previous outcome, which was islands of coverage across the nation with little economic scale.

OMISSIONS: But there have been two clear and outrageous policy omissions in this revised approach to date: an absence of identifying the actual problem and identifying & sticking to a consistent solution. It’s a bit difficult to talk about market failure in the absence of any empirical data on the subject. Spending decisions on Networking the Nation, HiBIS, Connect Australia and the Australian Broadband Guarantee were made in the absence of a national infrastructure audit.

Decisions on the beneficiaries of funding were made without a quantification of universal service need (this is a pending review) and amid ongoing controversy over contradictions between geographically deaveraged wholesale pricing regulation and national pricing parity policy for end retail users. Also many of the recent decisions don’t really seem to stick to the objectives of their programme. It was a clear mandate of the ABG to provide funds for the last 1% of the population not served by existing infrastructure or the Opel plans: the Telstra funding announced Thursday clearly does not conform to that mandate. And when the Broadband Connect funding details was first announced 13 months ago, the government said it “will support a small number of large scale infrastructure projects and leverage additional funding from the private sector and State and Territory Governments to extend the reach of broadband across rural, regional and remote Australia.”

The end result was one large national project with no state or territory government support.

Six months after the winner—Opel—was internally picked by DCITA, it still lacks a carrier license, hasn’t made a definitive decision on its choice of wireless access technology and according to a revealing article in The Australian over the weekend still hasn’t decided on its governance arrangements (apparently there is a power struggle between Optus and Elders). It goes on the record to boast that 80% of its infrastructure spend is being paid for by government (so much for those press release claims of a much greater private contribution).

It is apparently going to provide cheaper backhaul services by a factor of at least 30%. It is apparently going to provide metro-comparable pricing for high-speed broadband ($35-60). Great.

But judging by the coverage maps, Opel is also going to provide a full metro comparable service in the metropolitan areas of cities! (Opel and government statements on the number of projected served premises are currently contradictory—Opel says 6.3m, the government says 9.5m). How is this good policy, specifically from the perspective of economic competence? How does this promote sustainable infrastructure competition and a level playing field in the market? And why so much mystery over the expectations on Opel itself: what penalties does it face for example if it fails to deliver the anticipated outcomes? Will it be in a breach of license condition as Telstra could face on issues such as CDMA coverage parity? What is the success/fail criteria for Opel and ABG fund recipients?

by Grahame Lynch

This appeared in subscriber copies of CommsDay on October 15

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