Given their monopoly over the copper network, Telstra has been able to charge pretty much anything they like on a service-by-service basis for access to the local loop into any premise. The larger ISPs have been getting a reasonable deal – (simply due to volume) – but smaller ISPs have almost no ability to compete on price, as due to their lower volumes, are generally stung with a higher access charge per subscriber.

This has seen many in the industry calling for the “structural separation” of Telstra into separate retail and wholesale arms, and some kind of governance being put in place to ensure a level playing field for all ISPs in terms of the wholesale charges incurred to access the network.

Telstra have, naturally, been steadfast in their resistance to such a plan, which would obviously hurt their bottom line if the level of access charge became effectively out of their control.

Today has seen a landmark compromise with the signing of an effectively $11B deal between Telstra, the Australian Government, and the National Broadband Network (NBN Co). NBN Co is responsible for the design, and construction of Australia’s forthcoming Fibre-to-the-Premise (FttP) wholesale network.

In effect, NBN is buying the network assets of Telstra – (pits, ducting, cabling) – in return for $9B cash over time, and another $2B in sweeteners to assist in the migration of all Telstra services currently on the ancient copper network, onto the NBN. Telstra would then have little to do with eventual, actual wholesale fibre network.

In effect, structural separation by another name.

While the $11B deal appears to suit Telstra’s board, something more important, and worth far, far more comes from the deal. The effective abandoning of the copper network means that the millions of xDSL connections in place around the country must transfer to the NBN, as the copper network will gradually disappear.

There have always been questions on whether the NBN would be taken up in significant enough numbers – today’s deal basically ensures that almost everyone will be on the NBN in some form or another, even if it is just for basic telephony.

The NBN has just taken a massive step towards reality, and the much needed structural separation of Telstra has come about.

Finally.

Telstra have applied their virtual monopoly over the copper network in Australia since the day copper was first laid in this country. If anyone wants access to it – and therefore access into every home and business in the country – Telstra can pretty much charge what it wants. There is no other option for inbound/outbound services supplied by copper line, and everyone has to play the Telstra game. Having worked for a couple of different ISPs, I know exactly how their price-gouging mechanisms work in regards to access into their copper network.

At first glance however, exactly why they have been vehemently against the separation of their retail and wholesale businesses is still a strange question. Even if the wholesale arm was separate, it would still be the only owner of the network, and they could continue to use the charges they enforce on other ISPs to subsidise their wholly owned Bigpond concern – who they, strangely enough, charge a substantially smaller amount for access to the core copper network.

The bottom line is that what they are really worried about is the forthcoming fibre-to-the-home (FttH) network proposed under the National Broadband Network (NBN). Their copper will become obsolete as people move from the antiquated copper systems, to the faster and more reliable optical fibre systems. More importantly, Telstra won’t own it, so they can’t gouge any more – access to the local loop will finally become a level-playing field for all service providers, internet or otherwise.

Which makes a recent reversal of Telstra’s position interesting:

“There is now an agreement on a preferred model… that will see a progressive transition from Telstra’s copper access network to a fibre to premise National Broadband Network – and agreement that there needs to be an acceptable solution to the use of ducts and backhaul infrastructure that will deliver structural separation.”

Oh really? Seems a lot can happen in two months! At least they are finally seeing the bigger picture. Now, if we can only get rid of this mandatory filtering plan…

The money being spent is not being spent for it to be recouped. Okay? Do we build a $500M freeway and expect the money to come back over it’s life? No!

The NBN is an “infrastructure investment”. It’s a new freeway. You put a freeway in to make the rest of the ecomony around that freeway to become more efficient. Shorter travel times for people and freight, and the like. But the $500M for the freeway doesn’t come back to the place that money originally came from. You build it to allow MORE than $500M of advantage to come to the rest of the economy, simply because it exists.

The NBN is the same. The money is being spent so that everything else in the economy can improve, and ultimately generate – (via new business) – or save – (via increased efficiency of existing business) – money that might have been wasted in a piecemeal effort. Worse still, we could not spend the money at all, and let the Australian economy fall behind the rest of the world because we are communicating with tin-cans and string.

I just wish people would start seeing the point!

But why does this need to get into a petty Melbourne versus Sydney argument? I quote:

“Sydney’s track record of delivering big projects is a clear advantage over other cities – we delivered the Olympics, not the Commonwealth Games.”

Oh please! That’s just childish – the Olympics was one event NINE years ago, and has nothing to do with the ability or otherwise to run a national network!

It is also pleasing to see that the major news outlets are taking the time to consider the costs and implications of what the NBN will bring to the table.

As the above article suggests, for Australia to truly benefit from the NBN, it needs to be universally accepted and used. Several of the major telcos in this country, most notably Optus, have been calling for the structural separation of Telstra into retail and wholesale arms. Up until now, with their monopoly on fixed-line copper in Australia, Telstra has been able to dictate wholesale pricing to all carriers seeking access for data or voice services.

The copper in Australia is old. In some areas it is so bad in condition, or so lacking in quantity, that many people cannot receive xDSL services of any kind on their existing phone lines. Imagine how much it would cost and how long it would take to replace it? But why bother? It’s OLD technology.

The structural separation of Telstra holds many advantages – not the least of which is genuine price competition. However, if the government takes a bold step and mandates a cut-off date for the entire copper network – once the NBN is complete – Telstra will no longer be in the position to price-gouge with their wholesale pricing – they won’t have a product to do it with.

And then every one who wants a slice of the NBN pie will be on a level playing field. That’s a good thing. I certainly hope it happens.

This $43B spend is, quite simply, not about recouping the investment. This is INFRASTRUCTURE. Do we build $500M public freeways and expect that money to be recouped? No, because it’s infrastructure. The point of infrastructure is to provide stimulus for the rest of the economy to become more viable. The $43B won’t be recouped. It doesn’t have to be.

Over the life of this infrastructure, the potential benefit for the rest of the economy is worth well in excess of the $43B initial outlay.

Once the network is built, it’s operation and maintenance will switch to the so-called “NBNCo”, which will need to operate as a profitable enterprise, as it will be privately owned. The government – whose IT policies I have been a critic of – has actually got this right. They are “gifting” this network to Australia, to allow Australia to remain relevant to the world economy in the years ahead.

We currently lag well behind so many countries in broadband speed and penetration. This will bring us right up to the forefront, and give this country the best possible chance to survive in the modern, internet-connected world.

The “typical” Australian broadband user currently has a 1.5Mbps/256kbps ADSL connection, with most paying around $50.00 for the privilege.

Some projections have the new 100Mbps connections typically costing around $100.00 per month – and for some reason, many people are up-in-arms about it.

Sure – that might be double what most people are currently paying, but lets look a little deeper. Aside from people with Naked ADSL2/2+ connections – (which are about 50% higher in cost than “non-naked” services) – people currently paying $50.00 a month for ADSL1 at 1.5Mbps/256kbps, also pay for a local fixed line to carry that service.

Add the costs together. I currently pay $49.90 per month for ADSL1, plus (depending on what calls I make) around $65.00 a month for the fixed line to put that ADSL1 service onto.

That’s $115.00. The NBN fibre network will completely remove any real need I will ever have for a fixed line. I save $15.00 a month, and get 100 times faster internet.

Not so bad. If I really want a fixed-phone, I’ll get a VoIP service – but most of my personal voice communications are currently done via mobile phone – so I might not even bother.

The really smart ISPs will be gearing up with VoIP offerings in preparation for the new network – many already have. VoIP accounts are trivial to set up on something like an Asterisk server, so if you got your VoIP from the same provider who brings you your fibre (which is the logical choice), they’d likely not charge you to have the service – there would be a small fee to have your phone number pointing to their service, and then call carriage costs. That’s it.

So – in summary – faster internet, lower costs, cheaper phone calls. Where’s the problem? Oh yes – Telstra have realised that in 10 years nobody will need their monopolistic copper line system anymore.

For the home user – the cost advantage, combined with the speed increase will be valuable. For business, particularly small business, the ability to compete with the big boys with speeds they previously could only dream of, and with access to advanced telephony they could never contemplate before now, it will drive the entire economy to new scales of efficiency.

Big business will need to sharpen their pencils and provide REAL service – because the little guys who already focus on good old fashioned service, will suddenly become more accessible to everyone. Globally.

That’s got to be a good thing.

This “information” comes from Internode – a notoriously anti-Rudd/anti-Conroy ISP – but does hold an element of truth about it. However, I can’t see it costing that much – firstly – who would pay that much?

Currently in Australia, xDSL services cost a minimum of $20.00 per month – this is the deal that most ISPs get from Telstra to access the local copper loop into homes and businesses. This is a direct cost to the ISP that gets passed straight onto the customer.

ISPs then make their money on charging for higher speeds and/or excess data – this is why some ISPs have ridiculously low bandwidth quotas.

But the biggest cost to the ISPs – which also ultimately gets passed onto customers – is international data backhaul.

Given that most content viewed by Australian users on the internet lies outside our borders, the biggest demand for data services is out through international data connections. Australia is currently serviced by the Southern Cross Cable – (via New Zealand and Hawaii to the US west coast) – and a Telstra cable – (via Japan and Hawaii to the US west coast).

That’s not a lot of competition, and this allows these international carriers – within reason – to charge pretty much what they want.

PIPE Networks are about to begin laying their PPC-1 (PIPE Pacific Cable) – which will travel from Sydney to Guam (via Papua New Guinea), and connect directly to the US backbone there. They are already projecting that data carriage rates will be around 50% less than current pricing available from the incumbent carriers.

The NBN will probably require even more international bandwidth – and this could and would only further drive down international carriage costs. So, $100 per month for the NBN? In today’s environment – more than likely. In eight years from now when the project is completed? I doubt it.