A rebuttal to Malcolm Turnbull from Compare Broadband

  • Coalition alternative couched in ambiguity
  • Turnbull playing fast and loose with the idea of innovation
  • The real motives behind the fervent opposition

OPINION/ANALYSIS

 

This week, Shadow Communications Minister Malcolm Turnbull posted on his own blog a detailed rebuttal to comments made by Stephen Conroy, the current Communications Minister on Channel Ten’s ‘Meet The Press’ program from the previous Sunday. In this statement, Turnbull outlaid a point by point argument against the National Broadband Network (NBN) in its current form, and continued to hint at what the coalition alternative would be. In broad strokes, this is:

-    A re-iteration that the current NBN would not be ‘destroyed’, and that the coalition would carry out the goal (if not the means) of the NBN in a way that is quicker and more cost efficient.

-    The current Fibre-To-The-Home rollout is far too slow, and even though it is a superior technology, a Fibre-To-The-Node rollout would provide the same gains, far sooner.

-    FTTN costs between 1/3 and ¼ of a FTTH approach. The coalition plan would also leave room for alternative infrastructure providers to compete in many areas. This would keep NBNco honest.

-    Instead of cross subsidizing hard to reach rural customers, the coalition would simply levy a direct subsidy for rural users.

-    The coalition plan is better for rural customers because it will not discriminate against rural customers in towns with less than 500 homes.

-    There would be no fixed wireless solution provided by the NBN under the coalition – instead, the three major mobile providers (Telstra, Optus and Vodafone) would be encouraged to compete vigorously for rural customers and would be encouraged to upgrade their networks accordingly to meet demand and overcome distance barriers.
While not exactly a policy yet, the bones of a policy statement are there. The response has been negative, with even visitors to Turnbull’s blog rejecting his manifesto.

Media response

The statement comes after a long month of hard analysis on Turnbull and the Liberals from noted tech websites like Delimiter and ABC News, who have stretched a long way in accommodating a position that seems unpopular and untenable, even amongst Liberal supporters. These sites have done an admirable job of keeping Turnbull honest, and Turnbull has in turn responded courteously (well, kind of – he seems intent on slinging the word ‘bias’ around a lot, regardless of its definition) and comprehensively. At Compare Broadband, we’re not interested in duplicating the efforts of others in the tech blogging community at granular analysis of the coalition’s alternative to the NBN; instead we’d like to offer our own hypothesis of their motives, and the impact we’ve seen as a unique provider of content, and as a group that speaks directly to end users.

Facing customers

I personally have been working in the telecommunications industry, on and off, for 14 years. I have worked in direct customer service positions for Telstra, BigPond, Optus, Vodafone, 3 and in tech support for BigPond and Foxtel, which has some stake in all of this as well. And in my current role as a writer, I still take a good 30 or so enquiries a day, by phone and email, seeking advice. I know from experience just how maddening attaining a broadband connection is for many Australians, and it pains me to know that not only is this avoidable, but that the NBN manages to almost entirely eliminate this frustration. It’s exasperating to see such rampant opposition to it, with alternatives that fail to alleviate the stress currently involved.

The bottom line is: customers do not care which element is delivering which type of broadband transmission technology. They would rather not have to know. What’s important to customers (and to contextualize the issue, let's call them citizens) is that they can get the same service that they see advertised, regardless of geographical location, and that they can expect to duplicate that experience if they move, even if that move is interstate.

The phone utility incorporated several technologies, but aimed to provide the same end-user experience regardless of physical or economic circumstances – in other words, it was a public utility. This is what people want from Broadband, which is not adjacent to telephone services, but an evolution thereof and therefore subject to the same expectation.

How to define ‘innovation’

To bring this back to the issue at hand; Turnbull dances around an unpleasant truth. It will still require Telstra, or a company like Telstra, to have a monopoly on a service that can be defined as a public utility. Telstra currently owns and operates just about every connection from every premises in the country, to a local telephone exchange. This has, in the past, given it scope to squeeze retail competitors and make its own wireless service more attractive (recent steps by the ACC to declare wholesale pricing should limit Telstra’s ability to do this).Customers are largely unaware that mobile broadband is a fundamentally different value proposition for modern broadband usage.

The FTTN plan would simply shorten the length of lead that Telstra controls from each premises. It does nothing to eliminate their vertically integrated and uncompetitive business model. And with government and other services increasingly migrating online, a broadband service is well past due to be considered a public utility. And whereas a public utility is intended to provide a base level of service for everyone regardless of their financial position, Telstra and other publicly listed companies have no such mission. Their mission is to make money.

Making money is fantastic. But it is not always at the heart of what a good firm hopes to achieve. Turnbull’s argument breaks down to this idea; A company is incentivized into providing the best service as a means to keep the competition at bay. The money provides a carrot driving the donkey of innovation. Any government funded business is inherently inferior, because employees cannot make huge gains, which drives away the best and brightest employees.

The problem here is that Turnbull comes from the world of finance. As a former partner at Goldman Sachs, Turnbull’s view is that ‘innovation’ means finding innovative ways to make as much money as possible with the least amount of outlay and risk. That’s ok, that’s what a financial firm does. But a telecommunications firm is meant to find innovation in providing the best solution to connect homes and businesses. At a profit? Absolutely! At massive profits? Well, that’s the problem. It’s very hard to make massive profits unless someone is making a massive loss. And when one party is a billion dollar phone company and the other is a loose cadre of technological nimrods who want to answer emails, then it’s not hard to guess which party is going to be on which side of the ledger.

So once you peel back Turnbull’s talk of getting you a better solution, at quicker speeds for less money, what you’re left with is a very intelligent man, comfortable in the business world, who appears to be doing his best to make sure individuals not unlike himself have a means to “innovate in the telecommunications industry”, which really means “make massive profits at the expense of ignorant end users”. And I don’t mean to be disparaging about the ignorance of end users – as far as I’m concerned, they’re fully entitled to be ignorant. I don’t personally know anything about chair building, but I do hope that a carpenter isn’t purposely restricting access to good chair technologies to exploit my ignorance. And I’m not going to suggest Abbott and Turnbull, or large telco executives are cartoonishly rubbing their hands together at the thought of making life difficult for the Aussie battler. That may be an outcome of their policy, but their direct aim is different.

Brass Tacks

The question is what that direct aim is, for the coalition. It can’t be to find a cheaper solution – even if you account for Citibank’s estimate that the current coalition plan would cost $16bn to Labor’s $39bn plan, the Liberal plan fails to cross subsidize harder to reach areas where even FTTN would be unfeasible. A government subsidy has been alluded to by Turnbull, with absolutely no suggestion as to what that would cost. That’s because the answer would be ruinous to his entire argument.

An FTTN service would also require continued co-operation from Telstra, which would be sure to blow out that $16bn figure. Despite accusations from some corners of the media, Telstra are unlikely to be ‘in bed’ with the coalition – Telstra are in bed with their shareholders, and they will absolutely exploit holes in a coalition policy to their advantage, regardless of how chummy Turnbull and other similarly coiffed Telstra executives might be.

The coalition plan leaves too many people in the same situation, with no clear upgrade path unless similar (or increased) expenditure to Labor’s plan is factored in later.

In regards to making it quicker – the NBN isn’t about rolling out fibre to 93% of the population. That’s a means. The end is to have the same retail offering, both in price and service quality, available to 93% of the population (with the other 7% achieving at least a better situation than they’re in now, with the option to upgrade whole areas to fibre on demand). That would take 10 years, maybe 12 if we’re to play chicken little. An FTTN solution might be rolled out to a good number of homes in 3 years, but it’s likely that ‘good handful’ would be the same 30% of homes that currently have several options for broadband already. And even if some rural customers would get service quicker than under the NBN, a whole heap of them would get nothing.  The more comprehensive goal, of achieving ubiquity and parity of service, would be much farther away under the coalition plan.

The Mobile Argument

It hasn’t escaped the notice of many watchers that since Joe Hockey opened his unqualified mouth on the subject, Turnbull has moved the conversation away from the subject of wireless, or mobile broadband technology outstripping fibre by the time the NBN is completed. Turnbull and the coalition would do well to let that dog lie sleeping– the perceived shift from wireline to wireless connections is mostly a mirage, boosted by the uptake of smartphones. Most people are starting to realize not only that mobile broadband is the pits, it’s more the pits the more people are on it. Suggesting a future where we’re all flying along on 12G connections with no contention issues by 2020 flies in the face of usage statistics and physics.

Real motives

So what is the aim of the coalition response to the NBN? It doesn’t take a cynic to conclude that the real issue here is the NBN is a conspicuously decent bit of policy, fixing many problems in one fell swoop in a way that minimizes direct taxpayer impact (it is mostly being funded by bonds, which are not ideal, but are also not the same as just taking money from the till). The NBN remains something of a bright spot for Labor’s agenda, which has been marred almost as much as detractors are keen to accuse it of being. In other words, the NBN is good policy.

It’s frustrating to rely on a telecoms giant that provides networks to make a profit, rather than a giant that uses profit to continue running a good network. But this tail-wagging-dog scenario is entrenched in almost every corner of our lives – even healthcare,  where practitioners are expected to be responding to a deeper calling than profit making, is affected (less so here than in the US, but still).

And so it goes in politics. We now have politicians who campaign so they can win, instead of politicians who want to win so they can govern. The NBN is a decent example of good governance – it incorporates free market technologies and employs plenty of free market innovation and labour (do you think NBNco are wiring it themselves? These are contract jobs, and the equipment is built by firms like Alcatel, Siemens, Cisco and Corning that an FTTN solution would also rely on).

The government has made provisions to guarantee a return on investment, minimal taxpayer impact, maximum end user improvement, and have even incorporated a path towards privatization. Far from creating a bloated monopoly – the NBN perhaps doesn’t go far enough in creating a public asset that is owned by the Commonwealth. The conduits being used were not bought back from Telstra, they’re being leased. Telstra has some scope to raise that lease price, to encourage people towards their mobile offering, which will still be allowed to viably compete with the NBN (though not marketed as such for at least 5 years).  There’s plenty of scope, alas, for ‘innovation’ the way I suspect Turnbull means it.

What Turnbull fails to acknowledge

The NBN gets rid of confusion and unequal access. It still engenders plenty of competition at a retail level, and leaves mobile broadband wiggle room to compete viably as well. Any argument that mobile broadband is already a viable alternative to fixed line broadband is only true in the context that the current ability to get fixed line broadband can be a frustrating nightmare.

So make no mistake about it – the coalition opposition to the NBN exists because it’s good. Turnbull can’t say “Yeah…their ideas are good”. Not because this is “political suicide” or any other such nonsense – he can’t do it because he is engaging in the type of politics that focuses on winning over governance, and he is married to the idea that the free market should be ‘free’ to take advantage of people to create outsized profits.
This coded attack on good policy is not new, and is increasingly common in the English speaking world – particularly in the United States. It’s just the coalition’s bad luck that they’ve chosen an issue that a) has plenty of well informed people on the other side and that b) actually affects most people in a real and easily relatable way.

Turnbull and Abbott would have done better to accept the NBN and attack one of Labor’s true blind spots, and otherwise pledge to carry it out as public policy. That would have been a monumantally brave, progressive and rational approach. Extracting themselves now is not an option, and at best it will cost them an election, even while casting undue doubt on the NBN (there's plenty of due doubt, of course- like why Conroy needed to pay Optus $800mn to shut down their cable network, and why they're still dragging their feet in some areas, 2 months after they secured access to Telstra ducts).

The worst case scenario is that they keep to their word and implement an inferior solution for broadband access. Luckily, they’re adept at saying a lot and doing very little.