Does innovation need connectivity?


James Riley
Editorial Director

Eight and a half years ago a group of ICT companies put together a report Energising Australian Innovation which was sub-titled “a 10 year Strategic Vision for the Australian Information and Communications Technology Sector.”

As the nation awaits the innovation statement, there are lessons to learn from broadband policy history

The report begins:

Australia’s economic prosperity over the last decade, and for the foreseeable future, is critically dependent on productivity gains underpinned by innovation in information and communications technologies (ICTs). The two ‘sweet spots’ on the innovation continuum are, first, where the community makes innovative use of existing ICT and, second, where the ICT industry creates innovative technology. This document articulates a 10 year vision for Australia in an environment that will nurture and enhance both of these ‘sweet spots’.

This looks depressingly familiar. Unfortunately it is familiar because it is still being said.

Vision statement nine in that document called for “A high speed, affordable national broadband infrastructure and complementary e-security network that puts Australia amongst the leaders in the OECD in terms of its broadband capabilities.”

In the discussion in support of that vision the report said:

All homes and businesses should have  access to  high speed Internet connectivity  at reasonable prices, and by  high speed we  mean not less than one and, ultimately, not less than 30, Gigabits per second (Gb/s) bandwidth?

That doesn’t sound visionary until you realise that at the time (May 2007) the ALP NBN policy was just two months old, and it committed to only 12 Mbps. History records that the serendipitous confluence of Telstra intransigence, a GFC inspired shortage of investment funds and the sage advice of the Expert Panel resulted in a change of policy to the fibre solution offering speeds of up to 100 Mbps and beyond.

Since that point the “need for speed” and questions over consumer willingness to pay, have dominated the policy debate.

As NBN Co Ltd (which remains the company’s actual name) is settling in to the abandonment of the fibre to the premises model, it has just released a research report Internet Uninterrupted that concludes:

Peak bandwidth needs expected to grow

As every type of household from Hectic to Empty Nester increases its use of Internet applications, household behaviour will go through big changes. By 2020, with the continued spread of high-definition video into all areas of life and the dawn of the Internet of Things, households’ Internet behaviour will look greatly different to today.

These conclusions are backed by expectations that the average household will go from today using nine connected devices in the home to 29 in 2020. At peak times, households are predicted to have 12 simultaneous applications connecting to the Internet over multiple devices in 2020, up from the current eight.

NBN Co, of course, wants everyone to believe that the technologies it is deploying, FTTN and HFC using DOCSIS 3.1, will be equally capable of supporting these bandwidth needs.

The difficulty, of course, is that NBN Co has little ability to guarantee a Committed Information Rate for the Access Circuit component of either of these products.

But the real challenge from a policy perspective is the basis on which all the decisions to move to the Multi-Technology Mix were based.

The first of these is the assumptions around revenue, more importantly Average Revenue Per User, which is measured on a monthly basis. The background paper issued with the Coalition’s Broadband Policy said that ARPU under the (then) NBN Co Corporate Plan was forecast to be $40.72 for FY 2015.

The Coalition’s absurd claims about a peak funding blow-out were based on a massive understatement of that and estimated ARPU for 2015 at $29.11.

The actual result announced in the NBN Co full year results was $40, within rounding of the NBN Co Plan, up from $37 in 2014.

It wasn’t only the policy that trashed revenues. The Strategic Review stated that the NBN Co Corporate Plan forecast 0.3 per cent annual declines in ARPU, but to be in line with identified trends real ARPU for the Review analysis was assumed to decline by up to 2.5 per cent.

The Strategic Review also reduced revenue from the multicast service saying “the Corporate Plan appear to overstate the demand and availability of premium IPTV content in Australia.”

Yet NBN Co’s report OTT Video – Creating a New Market disputes that assumption.

In the report Ovum forecasts that the number of Australians paying for services like Netflix, Presto and Stan will quadruple over the next four years to hit 4.7 million in 2019 – comfortably outnumbering subscribers to traditional pay TV services delivered via cable and satellite TV which will number only three million.

These are only the problems with the Strategic Review. The issues are worse with the cost benefit analysis.

This is the report famously predicated on the assumption that 15 Mbps was more than enough download for the average household; a position not supported by NBN Co.

The cost benefit analysis also used the cost projections for the MTM from the strategic review. As was revealed in the latest Corporate Plan the cost of the MTM was underestimated by up to $15 billion.

The assertions about the cost and time for continuing the FTTP rollout used in the policy change have not been subject to the same degree of scrutiny.

The most recent effort described by the Prime Minister and Minster as the cost of continuing Labor’s policy is no such thing; it is the cost of restarting FTTP now after the rollout has been fully wound down.

The point is that at the start of the broadband policy the need for very high speeds was identified as part of the strategy to underpin an innovative economy. Despite attempts by detractors evidence since has been that the demand for higher speeds exist, and there is a willingness to pay. The MTM was implemented after a flawed eleven week analysis.

The Prime Minister once described then Prime Minister John Howard as breaking Australians hearts over the republic referendum. There are many who have that sentiment about Mr Turnbull and our communications infrastructure.

As the nation awaits the innovation statement this month there are lessons we need to take from the history of broadband policy.

The policy needs to be ambitious both now and into the future; it needs to address our innovation needs now, in five years and in twenty five years. The policy needs to be well analysed; not a cost benefit analysis because that is a flawed methodology, but at the very least it needs to relate expected benefits of individual programs.

It may be too much to ask that the innovation statement also include a commitment to the future costs required for NBN Co to guarantee 100 Mbps for all fixed line customers, with the possibility of no less than 1 Gbps.

The technologies may be capable of it, but the business plan doesn’t commit to the expenditure to realise them.

Do you know more? Contact James Riley via Email.

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