Government should build and own broadband network: Kohler

Here’s an idea that won’t be taken up. In fact this morning’s column might be described as a piss into the wind, but here goes anyway.

Instead of investing $4.7 billion out of the proposed Building Australia Fund (BAF) in someone else’s $10 billion fibre broadband network, how about the BAF build and own the whole thing.

With seed funding of $20 billion, the BAF will have enough money to do it, with plenty left over for roads and bridges.

Whoever wins the national broadband network tender that’s now underway will create a complicated regulatory problem, and an even more complicated moral one because the Government is proposing to subsidise a private monopoly.

The most likely result is that Telstra wins. This company is the modern manifestation of the Government’s original decision to build and own the first copper communications network, and then to sell it as a monopoly.

It was sold to repay Government debt, and a “massive regulatory bureaucracy” was established to try to keep it in check.

This bureaucracy has had only limited success – in fact it’s only been getting somewhere recently because Telstra’s monopoly has been broken by several other broadband networks created using ADSL boxes installed in Telstra’s telephone exchanges.

Those ADSL boxes will all have to be thrown away soon because the exchanges will be bypassed by the new, subsidised, fibre-to-the-node network (FTTN).

The exchanges will be replaced by nodes that are closer to people’s homes, so that the lengths of copper being used aren’t more than 1.5 kilometres long.

Except this time the “exchanges” (nodes) will be privately owned and there won’t be any room in them for other companies’ equipment. An FTTN is a natural monopoly, just as the copper used to be when the Government built it.

If by some miracle another bidder gets sufficiently organised to grab the $4.7 billion prize from the BAF, it will be even more complicated.

Telstra will, of course, continue to own the copper that the Government built and then sold.

The nodes and the fibre leading up to them would be owned by someone else, but they would have to connect to the copper in order to work.

And this couldn’t be done one node at a time by negotiation between the FTTN owner and Telstra; it would have to be done all at once by Government fiat, with Telstra being forced to contribute its copper network to the public good.

Telstra is not too happy about this and probably won’t play ball. There has been understandable talk of High Court challenges – after all, why should Telstra’s directors support a network competitor?

Whatever happens with the national broadband network, it will be a regulatory nightmare and will require an even more massive bureaucratic monopoly to deal with the network monopoly (it will be either Telstra alone or a hybrid of Telstra and someone else – but it will be a monopoly).

Time, in my view, for back to future; the FTTN will be an important natural monopoly, so the Government should build and own it.

In fact the BAF will be an arm’s length infrastructure fund run by David Murray, Paul Costello, Jeff Browne, Susan Doyle, John Mulcahy, Trevor Rowe, John Paterson and Brian Watson.

The initial act of Parliament defining how they should run the network is all the regulation required.

Specifically it would have to be a wholesale provider of network capacity, not a combination of network owner and retailer as the original PMG (the “Postmaster-General” network) was when the Government first built the copper network, as it still was in 1975 when it was turned into Telecom, as it was in 1993 when it was renamed Telstra – and as it was in 1997 when the first 4.29 million shares were sold to the public for $15 billion.

There would still be some complications, and possibly legal problems, around connecting the BAF-owned FTTN network to Telstra’s copper.

In truth the timing of this is a bit awkward, coinciding, as it does, with the final payment of the T3 instalments, 18 months after the Government sold the last of the Telstra monopoly.

But none of the prospectuses promised the Government wouldn’t build another network.

Nevertheless, to make life simpler, and to make the new network faster and more useful, the Government should just make it fibre-to-the-home, rather than fibre-to-the-node.

And then in a few years time the national communications network – this time fibre instead of copper – could be sold again by opening up the BAF to public subscription. Or not.

This story first appeared in Business Spectator