May 7, 2009 11:53 AM | 1 Comment

It has been shown to be possible to deliver speeds of up to 1.6 terabits over fibre, but will a privately-owned monopoly have the motivation to deliver those speeds?

I’ve been pretty positive about the government’s decision to go with fibre to the home for the NBN, but I have to confess that I do have one problem with the plan. And it’s a biggie.

I’m worried that the fibre plan will be Telstra all over again once the government sells it off. That is, a company that’s little inclined to improve its network without serious competition to motivate it.

The conventional wisdom is that the core of the “Telstra problem” is the lack of structural separation between the wholesale/network arm of the business and the retail arm.

For other ISPs and as a pricing issue, that’s true, but for consumers I don’t think that’s the whole story. Had the Liberal government split Telstra up into two entities yet still sold them both I don’t doubt we’d be in the same situation as we are now.

Wholesale-retail integration is not the major reason that Telstra drags its feet on introducing new technology – it’s because as a network monopolist, it has no motivation to do so. That would be true regardless of any kind of structural separation.

With Labor’s plan to sell down the government's stake in the national fibre network as soon as it can feasibly do so (five years after completion is the current thinking), I’m worried that we’ll end up in the same situation.

I understand its desire to do so – it makes the whole project more politically palatable, with the promise that the government can potentially recoup its costs. But removing the company from public governance also reduces its motivation to continually upgrade the network.

Fibre is capable of much more than 100mbps. In fact, over the past two decades the rate of improvement in the data capacity of fibre has made Moore’s Law look pitiable. To give you an indication of the kind of headroom fibre has, it has been shown to be possible to deliver speeds of up to 1.6 terabits (that’s 1,600,000mbps) and more over a single fibre pair using existing WDM systems. (If my calculations are correct, that means that a 20GB high-def movie download could be delivered to a computer in 0.1 seconds).

But will a privately-owned monopoly have the motivation to continue to improve the network to deliver those higher speeds? Or will it, like Telstra once it became public, decide to rest on its laurels and simply try to milk the existing infrastructure, knowing that competition is practically impossible?

Ironically, it’s for this reason that Telstra will be so important in the coming years.

The only company with the capacity to drive the NBN owners, a healthy Telstra will be necessary to keep the bastards honest, so to speak. Who would have thought?

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shamaka May 29, 2009 12:23 AM

I can't see the NBN happening - at least not the way it is currently envisioned. You have mentioned that the rate of technological progress is phenomenal, but so is the cost, which needs to be recouped due to our population density. IMHO you are right about the problem of a new monopoly on infrastructure. In relation to Telstra's selloff, I think it would have been better for the new Telcos being forced to build capacity in the country and not simply being able to leach off the lucrative city market where high population density exists. It's a cheap way for them to make money, without any resposibility to build anything major in the bush. That way we may get a range of technologies being introduced for different areas. I would like to see a fibre backbone as a major technology. When I was in the US they broke up the major telco and now they have regional monopolies (Baby Bells) and many complained that that did little to spur competition. Perhaps there should be an element of community service obligation placed on all ISP's (and telco's) once they reach a certain size to provide services in non-metropolitan areas! Why should Telstra be the only company with a country/rural service obligation!