National Broadband Network – Opportunities to capitalise on the biggest infrastructure project in Australia's history.
In April 2009, the Federal Government stunned the ITC industry with its announcement that it will establish a new company that will invest up to $43 billion over eight years to build and operate a National Broadband Network (NBN). In short, the NBN will comprise the single biggest infrastructure undertaking in Australia's history.
Under the plans, the funding for the network will offer speeds initially of up to 100 megabits per second which will be provided by a National Broadband Network Corporation (NBN Company) in which the Government will be the majority shareholder. The network will be operated separately from other carriers such as Telstra and Optus.
This latest announcement is made in the shadow of the previous NBN proposal by the Federal Government, which was terminated on 7 April 2009 upon advice from an independent panel of experts that none of the proposals from industry participants offered value for money. It is therefore worthwhile to briefly cover the background behind this latest announcement.
The Federal Government announced on 7 December 2007 that it would build a national high speed broadband fibre to the node network (FTTN) and that it would conduct a formal tendering process to determine who would build the network.
The Commonwealth received proposals from the following six parties:
- Acacia Australia Pty Ltd;
- Axia NetMedia Corporation;
- Optus Network Investment Pty Ltd;
- The Crown in Right of Tasmania;
- Telstra Corporation Limited; and
- TransACT Capital Communications Pty Ltd.1
On 13 December 2008, the panel decided that Telstra's proposal in the NBN request for proposal (RFP) process was non-compliant as it failed to submit a small and medium enterprise plan as required under the RFP.2 On this basis, the panel and the Commonwealth concluded Telstra had not met the conditions of participation and was excluded from further consideration in the RFP process.
The Government then terminated the tendering process citing the rapid deterioration of the global economy and that none of the national proposals offered value for money.
To understand the NBN and its implications, it is important to first understand some of the technical lingo. The most important element of a broadband network is 'speed'. Speed concerns 'bits' and 'bytes' and how many of them you can transmit.
A 'bit' is the fundamental unit of data, and is typically represented as a binary 0 or a binary 1. If you combine eight bits together then this constitutes a 'byte'.
So how are these units of data used to transmit meaningful data?
If you want to download a colour picture, that picture is made of millions of dots known as 'pixels'. Each pixel in a standard colour picture will use around 3 bytes to represent each pixel (1 byte each representing red, blue and green).
Then there are movies. Movies transmit as a series of pictures known as 'frames'. For a movie to be smooth it must be transmitted in or about 25 to 30 frames a second (that is 25 to 30 pictures a second).
Using these examples, you can begin to understand why you need to send millions upon millions of bits of data every second in order to facilitate many modern uses of the internet.
What the Federal Government proposes with the NBN is known as fibre to the home (FTTH). This technology differs from traditional copper wire networks and coaxial cable (which comprise most of Australia's telecommunications network), as it uses optical fibre which is basically a thread of glass that fires a beam of light down it rather than an electrical signal. This technology in simple language allows for far greater amounts data to be transmitted than traditional technologies, potentially thousands or even millions or megabits per second.
Issues in implementation
"A conflict of interest arises when a monopoly carrier is required by law to provide network access to its retail competitors, and is also required by law to maximise the return to its shareholders".3
There are a number of problems with the current telecommunications structure in Australia. Telstra remains one of the most integrated telecommunication companies in the world.4 It owns the fixed line copper network in Australia that connects every premise and business,5 and remains the dominant party in telecommunications despite 10 years of competition reforms being introduced in various acts.
The Government's goal (amongst others) is that the NBN Company be wholesale only and open access to maximise competition. How this is to be achieved is yet to be determined. It could be achieved by:
- the acquisition of Telstra's wholesale network;
- laying a new wholesale network; or
- by combining the two.
Although the Government is yet to publish the results of its implementation study in respect of the NBN, there are a number of obvious issues that immediately arise in respect of the NBN. For example, how will the Government convince Telstra to give up the wholesale arm of its business? One proposal is to allow Telstra to own up to 49 per cent of the NBN Company if it voluntarily gives up the wholesale side of its business.6
At the end of the day, the goal is that the wholesale NBN be structurally, not just functionally, separated from the network's retail services. This will allow for greater competition between businesses that will provide the retail services to consumers. Other telecommunications companies such as Optus, iiNet and new players would no longer have to purchase wholesale access from their competitor, Telstra.
The implications of the NBN are far broader than just 'faster internet'. In the short term, the roll out of the network will create jobs to facilitate the design of the network, dig trenches, lay cables and develop software. In the long term, it provides an entirely new infrastructure utility much like the implementation of electricity networks as a replacement to gas heat and lighting. It therefore has the potential to redefine the way society functions and facilitate numerous new applications. Some of these applications include:
- the provision of online health and educational services;
- smart-grids that deliver electricity from suppliers to consumers using digital technology to save energy, reduce cost and increase reliability;
- an increased use of outsourcing ITC requirements. Given that most outsourcing is, in one way or another, dependant on an internet connection, the greater speed offered by the NBN should dramatically broaden the scope and application of outsourcing; and
- utility and "cloud" computing, which is the packaging of computing resources, such as computation and storage solutions, as a metered service similar to a traditional public utility and is capable of being provided over the internet.
The NBN will undoubtedly create boom for the ITC industry and pave the way for innovative businesses to capitalise on the new opportunities that the NBN will undoubtedly create.
1 Department of Broadband, Communications and the Digital Economy, Extract from the Evaluation Report for the Request for Proposals to Roll-Out and Operate a national Broadband Network for Australia, 1.
2 Department of Broadband, Communications and the Digital Economy, Extract from the Evaluation Report for the Request for Proposals to Roll-Out and Operate a national Broadband Network for Australia, 1.
3 Chamber of Commerce and Industry, Western Australia, Regulation of the National Broadband Network, June 2008.
4 Department of Broadband, Communications and the Digital Economy, National Broadband Network: Regulatory Reform for 21st Century Broadband Discussion Paper, April 2009, 17.
5 Department of Broadband, Communications and the Digital Economy, National Broadband Network: Regulatory Reform for 21st Century Broadband Discussion Paper, April 2009, 17.
6 See for example, Martin Collins and John Durie, 'Telstra may divide and conquer' The Australian (Sydney), 12 May 2009.
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