It seems that my post on whether we should believe the opposition on broadband policy has caught the attention of the subject of the post, Member for Bradfield, Paul Fletcher.

Paul has graciously put forward his response to my article, and I greatly appreciate that he has taken time to respond. It would be of great benefit to political debate in this country if more of our politicians bothered to intelligently communicate in this way.

As much as I don’t agree with the broadband policies of the opposition, that Fletcher and shadow communications spokesperson, Malcolm Turnbull, do choose to interact as they do is a credit to them.

Firstly, a little business – Paul states:

“I am puzzled why Michael thinks this automatically means that we have sold out our personal beliefs and have no personal integrity.”

I’ll take this chance to pop my statement – “where has their personal integrity gone?” – into some context.

I probably should have said “where has their integrity gone with regards to broadband policy?” or something similar. You know – the old “stand up for what you believe in” stance, instead of being partisan.

That was the context I intended, and I thought it was implied via the statements around it. I apologise to Paul categorically if the comment was taken as “you have no personal integrity”, as that was absolutely not my intent.

Now, moving back onto the subject at hand – (that being broadband policy in Australia) – while Paul has clarified his position on many of the points I questioned in my earlier article, by putting them into a more complete context of how he was thinking at the time he wrote his book, I still can’t help but wonder where the Coalition broadband policy stands as a whole, even with this new context available.

I note that in his tweet he describes my response to his speech as “typical” – so it would be interesting to see all of the other responses to his speech; since my response was “typical”, there are obviously other people who agreed with my sentiments.

I know from my own discussions over many months on the topic of the National Broadband Network (NBN), that many people do agree, and wholeheartedly so.

By now getting to the crux of the issue, it is still obvious to me – (and many others) – that although the Coalition passionately believe in their hybrid FTTN/FTTH/HFC/Mobile Wireless/Satellite alternative to the Labor Government’s NBN solution – that their thinking is still very narrowly focussed, ignores the long term, and is not as “cheap” as they would have people believe.

Everyone agrees – including the Malcolm Turnbulls of the world – that no matter what happens in the short term, a fibre-to-the-home/premises solution is the ultimate endgame, and will be upon us one day.

The time will come, irrespective of what happens now.

But the suggestion by the Coalition that an intermediate FTTN solution provides an adequate migration path to an eventual FTTH network – (which is a common refrain) – is simply bogus. The jury is in, and it is just not correct.

Quoting respected former Internode network engineer – Mark Newton:

“FTTN doesn’t bring FTTP any closer, but it does push it several billion dollars further away…there’s no upgrade path from one to the other. This notion that FTTN is a “stepping stone” to something else is pure fantasy. If an FTTN network is built you’d better like it, because it’ll be around for a long, long time to come.”

Further, former ACCC chairman Graeme Samuel expected the real cost of the original FTTN proposal – (in reference I believe to the OPEL proposal Fletcher was heavily involved in) – to be massively more expensive than it appeared on the surface, stating:

“If the [former] government’s fibre-to-the-node proposal had proceeded, Telstra could have been entitled to an estimated A$15 billion to A$20 billion in compensation for the relegation of its copper network to the scrap heap.”

The same would likely apply to any renewed push for a FTTN network, as the existing copper network would still need to be “cut” to drop the new nodes into the network. This would take Telstra out of the loop, and see them entitled to compensation, as described in more detail in the ABC Four Corners report on the NBN shown below.

I genuinely believe this sort of detail is being deliberately left out of the debate by the Coalition. They are hell bent on having a plan that “sounds cheaper” than the NBN, to win over the average Joe on the street who doesn’t understand the broadband debate on any level. It’s called populist politics.

Paul also states in his response that:

“[Telstra] would have faced a sales and marketing challenge to win customers onto the new network.”

Frankly, I declare that statement ridiculous. Telstra would absolutely have had no problems moving people from their old network to their new network.

Who was going to stop them?

They would both have been owned by Telstra, and all they’d need to do is move people from one to the other. I don’t think that is a too difficult a reach to make.

Just as under the NBN, Telstra will simply move customers from their network, onto the NBN – there is very little real difference.

Since there’s an 18-month overlap from when the fibre is completed in any given area, to when the copper in that area would be decommissioned, there’s not a lot of a risk of breaching USO obligations – there’s plenty of time to prove the connection on the fibre, before killing the copper.

Tying it all together at the end, Citigroup recently costed the Coalition's proposed alternative network at $16.7 billion.

They of course deny the figure, and belittle the report – (Turnbull even directly described it as "fiction") – but they’ve still not managed to come up with an alternative figure. Their policy remains uncosted.

So, shall it be $16.7 billion to build their solution, plus at least around $15 billion to compensate Telstra for the loss of their network?

We’re at $31.7 billion so far.

Then there is the inevitable upgrade to FTTH down the track. We don’t know what that will cost in five or ten years from now, but the figure we have to build it today is around $35 billion.

$66.7 billion? Versus $35 billion?

Even if you add the $11 billion Telstra gets over the life of the project to compensate it for the loss of its fixed line business under the $35 billion NBN plan, we are still well ahead of the Coalition version.

Then there’s the time taken to actually renegotiate a deal with Telstra – (the Telstra/NBN deal just completed and now in effect took THREE YEARS to negotiate) – so presuming the Coalition came into government at the next election in 2013, and the whole deal has to be renegotiated all over again, does the whole idea of upgrading our broadband infrastructure get delayed until 2016? .

Nothing happens for three years? By 2016, the NBN would be at around the halfway mark of its construction!

Let us also not forget that Telstra would get $500 million in compensation for an early termination of the NBN project. For nothing other than signing the deal with NBN Co two days ago.

That’s a lot of expenditure the Coalition are committing us to, and certainly a lot more than the NBN as it stands right now would cost to implement, and taking longer to complete.

Seriously? That’s a “better” idea?

Paul finished his response with this comment about myself:

“I just disagree with him.”

Equally, I just have to still disagree with Paul. While his welcome clarification of his thoughts may have eliminated some of my concerns in my original post, I still don’t think we can believe the opposition over broadband.

In fact, I’m sure.

They need to start being a lot more honest with respect to what their plans will cost Australia in the long term. All they want is to get back into government. They care about the next 18 months.

Not the next fifty or more years that the NBN will set us up for.

So the choice is between the Coalition’s 18-month plan to get back into office with a hyper-expensive long term plan, or a plan that will ultimately cost significantly less to reach a point that both sides agree is inevitable.

I didn’t answer the “should we believe the opposition on broadband” question in my original post, preferring readers to answer that question for themselves.

I will answer it now though, and the answer is a resounding “no”, because since they agree that FTTH is the endgame, and that their plan is cheaper and faster to build only for the intermediate step, their whole stance is quite clearly one thing, and one thing only.

Crap.

With the recent acceptance of Telstra's structural separation undertaking (SSU) by the ACCC, the last significant hurdle for the volume rollout of the National Broadband Network (NBN) has been overcome.

Of course, the federal opposition is still on the attack, offering its cheaper yet significantly less advanced plan, that will commit us to higher upgrade costs in the future.

This is led by Malcolm Turnbull, and to a lesser extent, the Member for Bradfield, Paul Fletcher – a former telecommunications executive with current number two placed telco, Optus.

I want to focus on Fletcher for this article.

Some years ago, he wrote a book entitled “Wired Brown Land?” about the long-running saga into the long envisaged upgrade of broadband services in this country. Here is a heavily abridged version of it on Google Books:

Despite the above version being so abridged, there are a lot of “useful” and “interesting” quotes from Fletcher, that when read against a media release he made less than two weeks ago on his current opinion on the state of play, become far more useful and interesting.

Let’s take a look at just a few of them.

With respect to the decision in 1994 by Optus – (in a joint venture with US company Continental Cablevision) – to spend $3.5 billion dollars to roll out a HFC network – (the kind of network the Coalition are partially hedging their bets on in their NBN alternative plan) – in the most profitable areas of Australia; on the ultimate failure of that network to make a profit, Fletcher commented in his book:

“In financial terms, the investment in the HFC network never achieved a positive return – or anything even close. In fact, when Optus was acquired by SingTel in 2001, the value of the HFC network in the company’s accounts was written down by around $1.2 billion. The reason for the dismal result? Building an access network is very, very expensive. To make your money back, you need to get a huge number of customers. When Optus began offering services on the new network, 100 per cent of customers were with Telstra. It was a tough battle to win them away.”

In his recent media release, he states:

“You could not possibly come up with a higher risk, more disruptive, more eggs-in-one-basket way to upgrade Australia’s broadband infrastructure.”

So, in the first instance, the reason for the financial failure of the Optus Vision HFC network was because they couldn’t draw enough customers away from Telstra.

Yet apparently, in the case of the NBN where Telstra has agreed – (and this has now been ratified with the acceptance of the SSU by the ACCC) – that they will be decommissioning their copper network and moving all of their fixed line telephony and broadband customers onto the NBN, this will be a failure.

How does it follow that the Optus network failed because it couldn’t win enough of Telstra’s customers, that the NBN will fail given that it will gain almost all of Telstra’s customers?

It doesn’t.

Flippety floppity, Mr Fletcher.

The NBN doesn’t seem anywhere near as risky on those terms.

He even mentions the write-down in his media release (quoting against his book):

“When SingTel acquired Optus it wrote down the value of the HFC network by 1.2 billion dollars.”

Conveniently however, he chose to omit why it had to be written down, and what might have stopped it from having to happen.

Even after being quite clear and understanding of the reasons in his book.

Another common salvo against the NBN by the opposition is that the network won’t deliver any significant economic benefit. Previously, Fletcher seemed to be of a different opinion:

“Telstra was proposing to build an asset of considerable economic and social significance. By 2005 the Internet had been available to Australian consumers for nearly a decade and millions of people used it in their home and work lives. But many Australians were limited to relatively low-speed Internet access; only a fortunate few enjoyed true broadband speeds. Building a new national broadband network would give almost all Australians a guaranteed high-speed Internet connection; in turn this would stimulate usage and drive economic and social benefits.”

Firstly, he stated in his media release that “in my view the first lesson is that you can’t mandate take up”, even after saying in his book that improved broadband would “stimulate usage”.

Further, this is an even more interesting position to take, given in a recent speech to the parliamentary joint committee on the NBN, Fletcher stated:

“That is why the coalition have consistently called for a cost-benefit analysis, because it is a respected and well-understood methodology for dealing with the questions of how much money ought to be spent on particular projects, what the design of those projects should be and, in turn, what the benefits are that are obtained as a result and therefore does it make sense to proceed with the project and allocate scarce government funds to it, in a world where, as we all know, there are many more claims on the government purse than can all be met?”

So when he wrote the book, he understood the benefits of improved broadband, yet now when his job is to help Malcolm Turnbull “demolish the NBN“, suddenly his vision of the benefits has disappeared?

More flippy-floppiness.

Another argument from the Coalition is that fixed line revenues are falling – (“with most people now owning an iPad or iPhone or an Android equivalent, they do not necessarily want to be tied to a fixed line in their home“) – but fortunately, the Paul Fletcher of a few years ago has an answer for that too:

“A few years earlier, the only way for a consumer to get Internet access from home was to dial a special number provided by their Internet service provider. The consumer’s modem would then establish a connection over the line – at a maximum speed of 56 Kbps. Because this tied up the phone line – and it could not be used for voice calls at the same time – many households took a second phone line just for Internet access. But by 2005 many customers had switched to broadband using ADSL. With ADSL they could access the Internet over a phone line while still having the line available to make a voice call.”

“For phone companies, therefore, the arrival of ADSL was a mixed blessing. While it brought a valuable new revenue stream, it also contributed to a shrinkage in fixed lines, as many people who previously took a second line went back to using one line only. That meant a lot of revenue from monthly line rental on those second lines stopped coming in.”

So broadband itself is the reason for the decline in traditional fixed line revenues? You don’t hear them pointing that one out very often, do you? Yet they are happy to tell you its all about people moving to mobile broadband.

Go figure.

Further, another line has been “why are we replacing a great big private monopoly with a great big new government-owned monopoly“?

Fletcher to the rescue again:

“No competitor could afford to build a network which duplicated the reach of the FTTN network. So on that network Telstra would enjoy tremendous pricing power.”

It could be argued of course that NBN Co will have tremendous pricing power on the NBN – however, since they are required by the legislation that enables the NBN to even exist, to charge the exact same price for all products to all access seekers, their potential ultimate pricing power is removed.

It simply doesn’t exist.

Shall we continue?

“Many economists argue that such industries are ‘natural monopolies’, meaning that they have economic characteristics such that inevitably one company comes to dominate the sector. They point out that telecommunications is capital intensive – enormous amounts need to be spent to build a telecommunications network.”

In other words, no commercial telecommunications company is likely to ever build a truly national, open-access broadband network with equal pricing regardless of location, forcing such a network to come about in a different manner. A natural monopoly perhaps?

Seems he agrees on that one too.

My favourite quote from his recent media release is this:

“Today I want to argue that over the last twenty five years, in Australia and around the world, we have learned some important lessons about effective policy in this area.”

Go and read even the abridged version of his book linked above – you’ll see that his observations in no way demonstrate any effective policy “in this area”, with policy after policy after being policy being struck down as a failure.

The NBN policy is the only one that has cut through the existing mire, and the only national broadband policy proposed by anyone at anytime that has actually reached the point of being built.

Of course, we’ve already seen how another opposition attacker of the NBN, Senator Barnaby Joyce has changed his mind from a fibre network being a great idea, to being utterly opposed to it.

It’s all on the record.

Should we believe an opposition front against the NBN – (members of whom have sold out their personal beliefs of just a few years ago) – who are just being deliberately and antagonistically negative towards a government policy they want to cut down?

Where has their personal integrity gone?

Against the Coalition’s continual chopping and changing of their position – (even when they were in government) – the NBN seems like effective policy to me.

UPDATE: With appreciation, Paul Fletcher has responded to this article, and I have subsequently followed up against his response.