Moore & Moore Consultancy Services
Alternative Dimensional Business and Engineering Analysis
National Broadband Network II (2009)
Very fortunately, in January 2009 the so-called "Expert Panel" finally realised that the contrived plan to use Fibre to the Node (FTTN) and then use the existing Copper to the Premises (CTTP) was flawed in a number of fundamental ways starting with:
Even in relatively high density situations, the use of ADSL is really a stop-gap technology, and Australia has a large proportion of its CAN (in relation to all European countries and most other developed countries) that is not metropolitan length limited to less than about 1.5km, and using a stop-gap technology like ADSL was at the least foolhardy and very inappropriate in comparison to Radio and/or Fibre to the Premises (FTTP) from local exchange sites.
With the understanding that the Expert Panel had come to their senses and realised that FTTN was never going to provide an long-term workable engineering based solution that I produced my initial Submission to the Select Senate Committee. As it turned out, the Select Senate Committee wanted me to give evidence in Canberra, which I did, and included a set of simple overheads to show that the CAN and the Backhaul Network are indisputably tied to each other - meaning that simply replacing the CAN is not the solution to creating the NBN, but the Backhaul needs to be suitably augmented to carry the considerably extra traffic that will be put on the NBN because of the capabilities of the much higher bandwidth capabilities of the new technology CAN.
The main thrust of this Submission was that Telstra already has a significant infrastructure and to set another infrastructure in opposition is stupidity, and that had been proven with the failed Optus privatisation debacle. Not only did Telstra need to be split, but the total network infrastructure (Backhaul, Copper CAN, Fibre CAN, Mobile Phone CAN and HFC CAN technologies) is to be merged into NBN as a sub-Government Commission - along with the associated staff. Bigpond is to be spun off from Telstra along with the private shareholders, and this much smaller and far better focussed business will concentrate on bundled Retail Reselling of Wholesale services, combined with a very strong content market - including Foxtel. This approach would radically drive down Wholesale prices and maximise the profits in the private market for other competitive resellers to come in and compete on a relatively level playing field. There are immense economies of scale that come into play to the advantage of all Australians.
While giving evidence at the Select Senate Committee Hearing I used a short series of overheads to assist with my opening statement, and page 1 (below) gave a very simplified overview of how the telecommunications infrastructure is essential to our everyday life:
Page 4 of the overheads (below) showed how the common Backhaul Network essentially ties to the various CAN technologies to effect an end-to-end connection, and without the Backhaul Network (BN) there is no end-to-end connectivity
Taking this scenario a little further, Page 5 of the overheads (below) shows that every product that is used at the customer premises has a direct link through the CAN into a rather common Backhaul Network Infrastructure that is essentially almost all optical fibre with switch / routers to perform the network connection.
It should now become obvious that the Backhaul Network is the major connecting component, but the end-to-end connectivity is limited by the weakest link. In non-metro areas there is a significant lack of essential Backhaul and the CAN is not capable of Broadband - so this means that the whole non-metro network needs to be re-constructed. Page 2 of the overheads shows my vision of an Inland north-South Backhaul backbone, which I presented to the Expert Committee.
The National problem is that because the telecommunications infrastructure was put into competitive business hands, commercial justification for telecommunications infrastructure has limited this infrastructure to be heavily preferenced into metro areas and subsequently, there is a very thin telecommunications infrastructure beyond the metro areas and directly between these areas. Consequently, Pages 2 and 3 of the overheads showed my vision of a high capacity backbone to be positioned North-South through the centre of Queensland and New South Wales, along part of Victoria and then looping through Broken Hill towards Port Lincoln. This high capacity backbone Backhaul Network augmentation of the existing Backhaul would provide the necessary capability so that Eastern inland Australia can then connect to Broadband - where currently it is impossible. Page 3 (below) shows figuratively in a light blue the augmented Backhaul network grid that could follow to provide substantial Broadband capability beyond the metro areas in Eastern Australia. Understand that virtually none of the Light Blue grid currently exists.
The main thrust behind my submission through the Opening Address and and in giving of evidence to the Select Senate Committee was that the process in privatising the telecommunications infrastructure had fundamental serious flaws that has resulted in the need to introduce the NBN1 and NBN2 to fix up the catastrophic problems caused by privatising in the first instance. In my opening address I showed the overhead 5 (below) to show how Telstra could divest itself of its infrastructure and move itself into a fully privatised business totally focussed on reselling wholesale at retail.
This vision pulls all the existing telecommunications infrastructure back into a sub-government body where it is entirely focussed on maximising service standards and service availability; this focus removes the need for the TIO to have any major ongoing involvement, removes the need for the ACCC to be involved, removes the need for ongoing inquiries, removes the needs for heavy-handed regulation and positions the ACCC to manage retail issues - not infrastructure issues. The national savings would be immense, and it would give Telstra (renamed as Bigpond) the real opportunity to be highly efficient (in business terms), which would reflect a rocketing price on the stock market, and that would really satisfy the financial sector which has a major problem with a very much languishing telecommunications sector on the ASX.
In the Select Senate Committee Hearing, it became very apparent to me that Senator Ian McDonald (QLD) had asked a very leading question about providing Broadband to Birdsville (which is located in the South-Western corner of Queensland) and at the time I was unable to provide a detailed answer on how to efficiently provide the necessary infrastructure. As a consequence, I followed the verbal answer in the hearing with a more detailed response as an addendum to the original submission.
In providing this Addendum to Submission 45 I also did a first instance estimation of the project costing, which came out at about $4 M, and this in turn provided the basis to get a first instance costing per premises for the number of premises affected with this engineering proposal. What became immediately apparent was that on a purely commercial basis this expenditure would never be justified, but on a national social basis, the expenditure was extremely quickly justified, and that finding in turn provided the answers that Senator Nick Minchin (South Australia) was arguing against during the hearing, because it clearly showed that using a commercial financial justification was entirely inappropriate when it comes to providing infrastructure - and that includes the NBN.
Part of the answer that I provided to Senator Nick Minchin in the Addendum referred to the Theory of the Second Best, and it became clear to me that this was new territory for the Senators, so I then provided clear and concrete examples in a second Addendum to Submission 45, and the Secretary assured me that a copy of this has gone to the Productivity Commission, because the productivity advantages are measured in the 100s of percents - showing very clearly that the push to privatise infrastructures is very clearly a Second Best scenario compared to cooperatively operating infrastructures in a non-competitive arrangement.
In my opening address to the Select Senate Committee Hearing in Canberra on the 20th July 2009, I made reference to the “Theory of the Second Best”, and it later became obvious to me that although the Senators were very well versed in the Competitive Regime and its benefits, they appeared totally unaware of the Theory of the Second Best, which I outlined as follows:
“In 1956 two Economists, Australian-American Kevin Lancaster and Canadian Richard Lipsey came up with the “Theory of the Second Best” which in simple English states that “when businesses work in synergy, then this will always give the most efficient outcome for the economy”, or putting this in a more brutal form “the privatised / competitive regime is clearly a very poor Second Best choice compared to any synergetic infrastructure regime”.
(It is very "interesting" to note that North American-based economists have incorrectly 'arranged' that laisse-fare government control to be overtly named as the First Best scenario, when in fact, laisse-fare governments actively foster the worst case Second Best scenario and privatise all their infrastructures, leaving organised competitive corporations to run riot! Note that the financial collapses in 2007, 1987 and 1928 were all caused by businesses selling ponzy schemes of futures on futures - where the governments of the day acted as laisse-fare arrangements with almost no Regulation of business standards - and that is the worst case Second Best scenario which is very far removed from the First Best scenario of open cooperation and honesty.)
The Cold War was in its throes when this theory came out and economics lecturers found this theory ‘very difficult’ to teach in this political climate, so this theory has sat quietly for several decades.” During the giving of evidence, it became very clear to me that without a very simple worked example about a real situation, it was virtually impossible to demonstrate how this “Theory of the Second Best” works, and why this economic theory is so critical in light of the NBN infrastructure proposal and the consideration that the NBN is to be privatised (into the competitive regime) in about five years time.
Copyright © Malcolm Moore, 2009. Comments and Corrections are welcome