Australia’s Broadband Leap of Faith – Is it Justified?

This is definitely the news of the week! The impact on e-Health could be very significant.

Here is a basic news report.

NBN plan scrapped; govt seeks new partners

Mitchell Bingemann | April 07, 2009

THE federal Government has terminated the tender process for its national broadband network project and will instead look to partners to build a $43 billion fibre to the home network.

A new company, National Broadband Network Corporation, will be created to build the new network. It will be jointly owned by the Government and the private sector, Prime Minister Kevin Rudd said.

Mr Rudd said not one of the private bidders for the NBN's request for proposals met the government's requirements.

"None of the bids offered value for money," Mr Rudd said.

"The panel noted the rapid deterioration of the global economy had a significant impact on the process."

Prior to today, the Acacia consortium, comprising wealthy businessmen and telco veterans, had been regarded as frontrunner for the project ahead of Singapore-owned Optus and Canadian telco Axia NetMedia.

Telstra, Australia's largest telco, was expelled from the tender process after it failed to meet government guidelines in December last year.

Communications Minister Stephen Conroy said the Tasmanian government's state-based bid for the NBN was still being considered and that negotiations would commence over the next 24 hours to decide a construction timeline. He said it would be likely that the Tasmanian build would commence in July.

More here:

http://www.australianit.news.com.au/story/0,24897,25301755-15306,00.html

There has been a huge amount of commentary on this decision. I think it would be fair to say the experts are genuinely split on the soundness of this proposal.

Some typical commentary has been as follows:

http://www.theaustralian.news.com.au/story/0,25197,25314433-23289,00.html

Broadband opens door to specialist care

Adam Cresswell, Health editor | April 11, 2009

Article from: The Australian

FAST broadband links should allow a host of new health services to be delivered to people in rural and remote areas, and potentially right into aged-care or domestic homes.

And:

http://www.news.com.au/technology/story/0,28348,25319395-5014239,00.html

Consumer experts say Federal Government's high-speed broadband could cost $200 a month

By Alison Rehn

The Daily Telegraph

April 11, 2009 12:01am

• Government will build $43bn network
• Analysts, Opposition say it won't be cheap
• Prices could be $200 a month

CONSUMERS have been warned they will have to pay at least $200 a month to use the Federal Government's high-speed broadband network - or pay less for slower speeds.

And:

http://www.theage.com.au/opinion/other-projects-will-pay-for-harebrained-scheme-20090408-a0y4.html

Other projects will pay for hare-brained scheme

• Kenneth Davidson
• April 9, 2009

National broadband can be rolled out more cheaply using the existing network.

KEVIN Rudd is a political genius, but can the nation afford him as Prime Minister? Instead of announcing that Senator Stephen Conroy and whoever advises him on communications policy are duds who should be sacked, he has set off a $43 billion hare designed to last long enough to carry his Government through the next election.

And:

http://www.smh.com.au/national/cable-eye-to-the-future-20090409-a27m.html?page=-1

Cable eye to the future

• April 10, 2009

The national broadband network is touted by the Government as the key to the universe, but there are doubters, reports Phillip Hudson.

Super high-speed broadband can save lives and save the planet. The Minister for Broadband and Communications, Stephen Conroy, envisages a Sydney specialist examining in real time a three-dimensional MRI for a patient in far-off Broken Hill and giving a diagnosis.

And second last:

http://newmatilda.com/2009/04/07/australia-lead-world-something-good

Australia To Lead The World At Something Good

By Paul Budde

Kevin Rudd surprised a lot of people this morning with the news that instead of contracting someone to build its National Broadband Network (NBN), the Government would take the lead itself.

And last:

http://www.computerworld.com.au/article/298454/analysts_nbn_questions_need_answering?eid=-255

Analysts: NBN questions need answering

ICT analysts welcome the Federal Government's NBN decision but also raise concerns

Matthew Sainsbury (ARN) 07 April, 2009 16:08

ICT analysts have welcomed the Federal Government’s flip flop on the NBN but raised concerns its plan lacks detail.

----- End Links

So we definitely have this as the biggest news of the week. The implications of improved broadband for e-Health are obvious.

The plan provokes a number of questions in my view.

The first issue in my mind is if it really needs so much money and so much time to make the difference we need.

To get this in perspective this is $2047 per person for every one of the 21 million persons in the country.

If you consider the following page you will see there are about 8 million internet connections in Australia.

http://www.abs.gov.au/ausstats/abs@.nsf/mf/8153.0/

Break these down and guess what:

“HIGHLIGHTS

• Mobile wireless access connections were 1.30 million subscribers, or almost 20% of all non dial-up access connections. The number of connections using this technology continued to grow at a significant rate, as more ISPs offered this service, networks increased in coverage and prices fell.
• Digital Subscriber Line (DSL) continued to be the dominant access technology used for non dial-up subscribers, increasing to 4.21 million, or almost 63% of all non dial-up connections.
• Cable, satellite and fixed wireless connections are now available separately for the first time.
• Access to higher download speeds have increased since June 2008, with approximately 50% of all subscribers using a download speed of 1.5Mbps or greater.
• Those subscribers accessing the internet with download speeds of 1.5Mbps to less than 8Mbps represented the greatest number of users (25%). Over 41% of business and government subscribers were using this speed, compared to 22% of household subscribers. This and 8Mbps to less than 24Mbps were the most frequently used download speed for household subscribers.”

Australia had almost eight million active internet subscribers at December 2008; with just under 84% being broadband connections.

Given there are only about 9 million households in Australia and maybe 1.5 million businesses we are talking about a maximum of 10.5 million connections for the network at 100% adoption. This means each connection will cost $4000 or so to establish.

At $50 per month this means the payback will take 80 months excluding the cost of capital etc for the initial investment. That is almost 7 years and you need to add operational, maintenance and staff costs to those costs as well.

I may have this wrong but I can’t see how each connection is going to be put in place and serviced for under $100 - $150 per month. I am not sure there is going to be huge demand at that price – when ADSL2+ and Cable can deliver ¼ of the speed at a known cost of about $60 per month.

We shall see but at first cut it looks pretty expensive! There also have to be real issues about how many people will want to switch from their current provider to pay more.

The second issue is the one of technology choice. I have no problem with the choice of fibre as a transmission medium, but if we are talking about an eight year build I believe we should be going gigabit connectivity at a minimum. (Heaven’s above I swapped my home network to a gigabit switch over 12 months ago and every PC I have bought over the last 3 years has had gigabit Ethernet as standard.) The major capital costs of this network seems to me to come from 2 areas. First the actual work laying out all the fibre and then the cost of all the driving electronics. The first is hard to avoid (wireless maybe?) but the second you want as future proof as possible – so why buy technology that is essentially obsolete before you start?

The third issue has to be questioning if we need to spend as much as $43B to provide all those who need high speed connectivity with it. I am a little concerned that the zeal to snub Telstra – while it may make a great deal more sense to have a phased plan to have Telstra build the new network and merge its national assets into the new entity open access network for a reasonable return and have no risk of legal and other complications. Going that way certainly solves the next issue and would have to be able to happen more quickly. Even using Telstra ducts etc – for a fee – could save squillions according to the Financial Review.

The fourth issue is certainly the fact that there is substantial political opposition to the project as currently framed. This must increase the risk dramatically.

See here:

http://www.theaustralian.news.com.au/story/0,25197,25329883-7583,00.html

Ruddnet is too good to be true

Malcolm Turnbull | April 14, 2009

Article from: The Australian

KEVIN Rudd promised a broadband revolution if he became prime minister. A state-of-the-art, fibre-to-the-node broadband would reach 98 per cent of the population. It would be built by the private sector with a $4.7 billion investment from the Government.

The fifth is the issue of just where network costs flow from. See this:

http://www.australianit.news.com.au/story/0,24897,25329613-5013040,00.html

Global costs are choke point for broadband plan

Andrew Colley | April 14, 2009

THE federal Government will closely monitor Australia's international internet transmission capacity as its plans for building a $43 billion national broadband network move closer to fruition.

The last issue that worries me is just where we are going to find the large number of skilled network engineering staff to operate a network of this scale and complexity. I am not sure these people are sitting around in the numbers required waiting to be recruited into the effort!

All in all I don’t think the options and possibilities have been as fully explored as I would like and certainly I need a great deal more information before I will be convinced this ‘back of the envelope’ plan is indeed the right one for Australia.

I know I shouldn’t raise the issue in this context but we should all remember the Minister responsible for delivering all this is the one who wants to censor our internet feed! Ironic indeed to want to both speed up and slow our internet access.

The business case and implementation plan will be vital in helping us all decide if all this makes sense. It had better be a decently open and transparent process. Before anyone asks I am quite convinced of the importance to our future of ubiquitous broadband – it’s how we get there I am worrying about here! It seems to me that before you spend that much money, you really need to provide the public with a serious strategic option analysis covering network capabilities and requirements, costs and risks, commercial viability and at least some discussion of technology futures that may impact over the next decade.

David.

(Disclosure note: I have a few telco shares – both Singtel and Telstra)