It was “Too early to tell” according to the misunderstood reply from Zhou Enlai (China’s Prime Minister from 1949 to 1976) to Henry Kissinger in the early 1970s on the question of what he thought about the French Revolution. The same can be said for Malcolm Turnbull’s NBN legacy.
A Bigger Picture, Turnbull’s recent memoir, has caught the headlines as it addresses the dramas of the last decade of Australian politics. However, it has not shed much new light on Australia’s fixed broadband dilemma and in particular the pros and cons of Turnbull’s NBN.
In the dedicated chapter on the NBN in his memoir Turnbull pronounces the NBN a ‘non-political and thoroughly technocratic’ project and a ‘success story’ . There is little in the way of reflection on the policy choices he drove, the outcomes that have been achieved and most importantly where now for Australia’s fixed broadband industry. In short, Turnbull has called ‘job done … nothing more to see here’.
Many who have been involved as participants in the telecommunications industry or as frustrated customers may beg to disagree.
NBN Co’s own wholesale customers (such as Telstra, Optus and TPG Telecom) have regularly called out short-comings with the services being offered and the prices being charged. The ACCC has questioned the performance of the NBN network and customer complaints are still growing. Meanwhile the financial performance of NBN is being questioned even while the current management fend off claims for a write-down of the government’s equity stake in NBN Co.
However none of these points are addressed by Turnbull’s chapter on the NBN in his memoir.
A question of Monopoly v Competition
But Turnbull does touch on some of the deeper structural structural problems that have plagued Australia’s telecommunications industry since the early 1990s. In a short passage referencing the Hawke government’s 1990s reforms he reveals himself as a supporter of separating Telstra’s (then Telecom Australia) network business from its retail business. He also recounts a meeting he and Chris Corrigan had with Paul Keating where they lobbied to setup an independent ‘wholesale-only cable company [as] a regulated monopoly funded by the private sector’ . These points serve to highlight what seems to be the current Turnbull view that Australia is best served by a monopoly fixed network provider, albeit separated from the retail service providers such as Telstra, Optus and TPG Telecom.
But this Turnbull position, perhaps like the man himself, has been malleable over time. But before getting into the detail of Turnbull’s changing views it is necessary to do a quick recap on the core problem of Australia’s fixed broadband industry.
At the heart of Australia’s lagging broadband performance is the question of how to optimise the investment in new technologies to increase broadband performance as the digital era continues to drive increasing demands on fixed telecommunications networks. Australia has been a world leader in the investment and take up of mobile technologies since the early 1990s. Competition between Telstra, Optus and Vodafone has ensured 2G, 3G and 4G technologies have been deployed efficiently and effectively with minimum government intervention . Of course, private investment success in mobile has come with private investment failures by OneTel and Hutchison, as market forces have driven investment decisions. Consumers have been the winners as networks have improved and pricing has remained competitive.
Australia’s experience in fixed broadband has been diametrically opposite to the successes in mobile broadband. The equivalent to the 2G, 3G and 4G technology advances in fixed networks is the increased deployment of fibre closer to the customer with network architectures such as Hybrid Fibre Coax (HFC), Fibre to the Node (FTTN), Fibre to the Curb (FTTC) and Fibre to the Premises (FTTP) increasing the depth of fibre in the network. Telstra and Optus competed aggressively in rollouts of separate HFC networks for pay TV delivery in the 1990s, with Telstra and its Foxtel partner, News Corporation, eventually forcing Optus to wind-down its competing pay TV subsidiary Optus Vision. As with mobile, the fixed network industry saw winners and losers as new technologies were battle grounds for competitive advantage.
However, unlike in mobile, Telstra ended up with a near monopoly in local fixed telephony and broadband resulting in a significant pull back on its own fixed broadband investments – preferring instead to sweat its network assets. A period of regulatory battles ensued over pricing and access to Telstra’s networks.
A monopoly going on an investment strike is nothing new – anyone who has done even a smattering of economics will understand that a monopoly will increase profits if it restricts supply. So while broadband demand was building through the early 2000s, Australia had little investment in the new fibre based technologies of the time (ie. FTTN and HFC) as the newly privatised Telstra sought to maximise its profits and dividends to shareholders.
Opposing the ‘Socialist Paradise’
After experiencing first hand the frustrations of dealing with Telstra, Labor had thrown caution to the wind and embarked on building an FTTP network to 93% of Australian households via a newly formed fully state-owned company, NBN Co. In so doing, Labor was essentially making a ‘Hail Mary’ play to bypass Telstra and build the necessary infrastructure itself. A key plank of this project was the creation of a wholesale-only network monopoly, not too dissimilar from the one that Turnbull had proposed to Keating, albeit a government rather than privately owned monopoly.
Labor was able to cajole Telstra into a deal with NBN Co using a fistful of dollars and the threat of missing out on key mobile spectrum and onerous regulation if it did not co-operate with NBN Co. To strengthen the monopoly Telstra and Optus agreed to close down their 1990s’ era HFC networks and transfer the customers to the NBN.
Despite his earlier advocacy for a wholesale-only monopoly himself, Turnbull was highly critical of Labor and NBN Co’s moves. In May 2012, in a speech to parliament Turnbull clearly articulated a very different view :
But here in the socialist paradise [emphasis added] of Julia Gillard’s Australia the government is building a massive new fixed line telecommunications monopoly and, just in case there would be any competition with it, the government is paying Telstra and Optus to decommission their HFC networks as well as paying Telstra to decommission its copper network. It is difficult, therefore, to think of anything more anti-competitive than a new government owned Telco, the NBN, paying Optus $800 million to shut down the HFC network, which is currently offering high-speed broadband services comparable to those that will eventually be offered by the NBN itself.
Later in 2012 Turnbull, after a number of visits to investigate international markets, went even further and specifically criticised Labor’s monopoly policy of ‘stamping out’ infrastructure based competition.
The problem with this thesis is that it basically denies the dynamic, creative forces which only competition can deliver. A monopoly is always likely to be complacent – there is nothing to stir it to innovate, to improve its efficiency.
And that is why, no doubt, that in every other comparable country a central telecoms policy objective is to promote facilities [or infrastructure] based competition where this is possible (typically built-up areas). I am not aware of one other country where the policy is to actively stamp it out.
This advocacy for infrastructure competition over monopoly in the provision of fixed broadband infrastructure was in line with most international policy developments at the time. It followed the success of the same policy in mobile networks as recounted above. However, Australia had not been able to manage the transition from incumbent monopoly network provider to competition in urban markets as other markets had done
Turnbull even went so far as to say that, if elected to power, the Coalition would ‘seek to reverse’ the Telstra and Optus HFC network deals.
[W]e will remove as many of the barriers to competition with the NBN Co as possible – for example we would seek to reverse the arrangement whereby Telstra and Optus are obliged not to use their HFC to compete with NBN Co on broadband data and voice, the extent to which that is possible obviously depends on negotiation. In every other country of which I am aware, government policy seeks to encourage and promote facilities based competition, including by HFC, not suppress it.
Monopoly wins back Turnbull’s heart
On becoming the Minister for Communications in September 2013, Turnbull initiated a quick fire Strategic Review of the NBN that reported in December 2013. The outcome was the Multi Technology Mix (MTM) where NBN Co would deploy a mix of FTTN, HFC and FTTP (mainly to new estates and apartment blocks) along with continuing the Labor policy of Fixed Wireless and Satellite in regional and remote areas.
The back tracking on the arrangements for the Telstra and Optus’ HFC networks to be decommissioned was the first sign that Turnbull’s previous pro-competition rhetoric would be completely turned on its head. These networks, which had been largely starved of maintenance funding for over a decade, were to be taken over by NBN Co and re-purposed for the NBN. Ultimately both networks would cause more pain than gain for NBN Co with the Optus HFC network not up to the task and largely jettisoned and Telstra’s the subject of many faults that halted the rollout and required significant expenditure to remediate.
The MTM was held up as a policy in line with international developments. However there was no mention of the fact that the multiple technologies being pursued in other markets were a direct result of infrastructure competition and not the result of a central government planning which technologies should be deployed where across the nation. Where some degree of government funding for infrastructure was provided (in Singapore and New Zealand for example) there was only one technology being subsidised – namely FTTP.
Along the way to becoming the Minister in charge of NBN Co, Turnbull had become a fully paid up member of the monopolist club for fixed telecommunications – again.
This reversion was re-inforced after TPG Telecom, sensing an opportunity with the move by NBN Co away from FTTP and perhaps Turnbull’s previous pro-competition stance, announced it would rollout a competitive Fibre to the Building network to compete with NBN Co across 500,000 premises (or 5% of NBN Co’s total addressable market).
Turnbull, with the help of the ACCC, enacted a number of regulations and planned levies that built on the previous Labor legislation that actively discouraged any competition with NBN Co from new alternative fixed network competitors. What Turnbull had referred to as a ‘massive new fixed line telecommunications monopoly’ needed even more protection under the new MTM policy given that the technologies it was now deploying could be more easily challenged by new competitors.
Turnbull’s monopoly policy backflip was further highlighted by his own hand-picked expert enquiry (lead by Dr Michael Vertigan) in its NBN Market and Regulatory Report of August 2014. The report recommended NBN Co be disaggregated along technology lines so as to “improve the prospects of infrastructure competition now and in the future”. On publication of the report Turnbull quickly distanced himself from this recommendation, pushing off any reform until after the completion of the build of the MTM network.
Irish jokes aside
We are now in 2020 and the network Turnbull planned for is all but complete. Despite the many complaints and issues that have been raised, the network is an improvement on the old Telstra ADSL network it largely replaced. But it is a network that is using technologies that were largely developed and deployed internationally from 2000 to 2010. FTTP is now the most used technology serving broadband consumers globally.
Turnbull has not put forward a position for what now with the NBN. Australia still has a monopoly based fixed network industry model, much like it did in the period in 2005 to 2010 when Telstra went on an investment strike. For the same commercial reasons, NBN Co, as the new monopoly, will be unlikely to make further investments to upgrade the network using its own cashflows when (or if) they turn positive.
Privatisation of NBN Co has been mooted and Telstra (via its new business unit InfraCo) has sought a ‘seat at the table‘ in any discussions. Will Turnbull, free from politics and again active in investment banking circles, be their advocating for the private wholesale only monopoly he raised back in the 1990s? It would of course be one of the most blatant examples of the private sector ‘socialising the losses’ and ‘pocketing the profits’ if NBN Co is written down at taxpayers’ expense only to be turned over to a private company to extract the monopoly rents with minimal ongoing investment.
As Turnbull recounts in his memoir he often likened his “predicament with the NBN to the man who gets lost driving around Ireland. He walks into a pub and asks for a direction to Dublin only to be told, ‘If I were you’, I wouldn’t be starting from here’ .
Turnbull has never really outlined his answer to this question. He did not put Australia on a path towards sustainable investment in fixed broadband. In the grand sweep of time he will likely be seen as just another Australian broadband policy maker who went from from pub to pub, with a bunch of mates, recycling old monopoly style policies from a bygone era.