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Microsoft word - economuse-53-jdr-2.doc

Economuse, 30 March 2007
Broadband – Picking winners or correcting failures?
Is the ALP’s proposed national FTTN broadband network visionary nation-
building or economic vandalism? I like it but more detail is required.

Australia’s international ranking on broadband penetration is a cause of nationalembarrassment. More importantly, electronic communications is increasingly seen as anenabling technology that can transform economies and enhance productivity. I believethere is political consensus on these points but the main parties differ on how thisopportunity should be realised - Broadband Connect is also trying to create infrastructurecompetition while the FTTN proposal seeks to establish a ubiquitous broadband networkquick-smart.
Correcting market failure
The Prime Minister asks why public money should be used to fund something “the
private sector ought to provide”. What about Broadband Connect? This is a
“partnership” approach aimed at getting broadband to “1.6m homes, businesses and not-
for-profit organisations in regional, rural and remote areas” [1].
The political parties agree that there is market failure - the market will under-serve non-metro areas. There is little or no commercial interest in building terrestrial broadbandnetworks outside metro areas. But the parties differ in the solutions they offer.
Broadband Connect is technology-neutral while the ALP proposal is based on copper inthe last mile. The latter could be seen as “picking a winner” but with regulated open-access and no constraint on alternative networks, it does not matter. Yes, the ultimategoal is fibre all-the-way (FTTH), but it is too expensive.
Correcting policy failure
The ALP claims there is a policy failure because the Telstra and G9 plans depend upon
changes to legislation that the Minister has refused to countenance before 2009. Since the
ALP announcement, we hear that the Minister is exploring the rival (metro-only) FTTN
proposals and will consider “practical and legitimate measures” to aid them. A possible
example of a missed opportunity is the failure to bring Telstra’s ‘rogue regulator’ to heel
with a clear statement about uniform pricing policy.
Both major parties agree that any FFTN builder is entitled to a “commercial return” ontheir investment. I have argued before in this column that access pricing at TSLRIC ischilling investment. It does not mimic commercial outcomes.
Pre-conditions for the FTTN
The ALP proposes a beauty-contest in which any organisation willing to provide 12Mbps
over an open-access network to 98 percent of Australians within five years is invited to
apply for up to $4.7bn of government equity with “ambit claims” for the changes tolegislation they need to support the investment. I have suggested six criteria that shouldbe used to assess broadband proposals and the ALP approach sits very comfortably withthem all [2].
We know G9’s proposal requires a prohibition on competing network build. I was at theNational Press Club for the ALP announcement [3] and got the strong impression thatthis would be too big a request; too big for any government to stomach. PersuadingTelstra to join G9 or part willingly with its access network also seems unthinkable.
An obvious Telstra claim is a clearer mandate for uniform pricing, as noted above. I amnot sure that abolishing Parts IIB and IIC (concerning conduct and access respectively) ofthe Trade Practices Act will do much to stimulate investment; but I believe the ACCCshould account for using these parts of the legislation rather than the general provisionsthat apply to all industries.
A clear choice
Present policy is more concerned about nurturing competitive infrastructure than
obtaining a ubiquitous broadband network. Even in the long-term, the benefits are
uncertain in a country with Australia’s challenges and a natural monopoly in the fixed
access network.
The ALP approach is more concerned about realising the national benefits of broadbandthan developing alternative access networks. It looks like higher ground to me.
John de Ridder is a consulting telecommunications economist with expertise incompetition, pricing and regulation. www.deridder.com.au [1] Broadband Connect and Clever Networks – Discussion Paper, November 2005 (pages 4 and 9)[2] See “How to get true broadband” slide pack of 23 February speech to TSA on my home page.
[3] I was a guest of Telstra but please note that I have not received any work or payment from Telstra in thelast two years. My opinions are my own and I back them up with evidence and argument.

Source: http://deridder.com.au/files/Economuse-53.pdf

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