Conroy's milking broadband spectra – while surfer's dongles suffer!

Auctions of “property rights” are a valid way of governments extracting value for the community from public assets, such as minerals, bandwidth and oceans. A recent example is Senator Conroy’s Dec 2011 proposal to auction the 800MHz bandwidth used by Telstra and Vodafone should they not agree to the $1.4 billion fees proposed by the Minister to be paid by the two companies for renewal of their licenses in 2013.

Auctioning bandwidth has long been seen as a sensible and efficient means of allocating this scarce resource to the most valued uses.
But what the Minister should be doing, I argue, is tendering or auctioning delivery of a range of broadband services by area, region or zone, based on bids reflecting existing telecommunications assets (HFC cable, copper, fibre and wireless) and varying regional demands. Auctions can expedite a fast and efficient broadband network across Australia with competition across differing infrastructure platforms – existing and new.

Instead, and contrary to the expert opinion of many companies and individuals engaged in the industry, the Government is creating a new monopoly of mandated fibre for 93% of Australians.

The federal government is seeking fees of $1.4 billion from Telstra and Vodafone for the renewal of 800MHz spectrum licences which are expiring in 2013.
This spectrum band is extremely valuable. It is used to service growing demand for data intensive services to iPads, mobile phones and other wireless services which are exploding in terms of data usage, as the market demonstrates the value placed on portability. Realising this value Broadband Minister Senator Stephen Conroy wants to auction the spectrum, to boost budget revenues. If the companies object to paying the fees, he has told them he will auction the licences, which could bring in new players.

But the real issue is that Senator Conroy has chosen to spend $37 billion arguably on the wrong broadband model. He is financing a monopoly fibre system that will terminate access to the very source of competition in fast broadband that is available now, through HFC cable in the cities and metropolitan areas like the Australian Capital Territory, Ballarat and Geelong.
The existing HFC cable, wired and wireless systems (including the many transmission towers) are capable of delivering very fast broadband, and indeed of teaming up and combining in efficient mixed solutions and packages. The idea of having a coordinating public company such as an NBN Co is excellent, but not as a body that rolls out fibre and excludes or removes or penalises competitive broadband technologies.

Many, no most if not all, customers really value portability, are also looking to faster mobile access through 3G and 4G wireless, and VDSL, plus Wi-Fi connections, knowing these non-fibre systems are also capable of offering speeds of over 30 MBps with enough towers and stations that can be privately provided. Some gigabyte plus solutions are already deliverable using HFC cable that also delivers pay TV.

But many customers who are not that desperate for faster home broadband via the national broadband network are currently cranky as their 3G and ADSL data services become grindingly slow under the seasonal surge in demand in coastal and holiday areas. Dongles and 3G services are being renamed Doodles or BoonDongles, as people go to sleep waiting downloads such as news, e-books and sports information.

The beach-based demands via iPhones, iPads and other wireless services reveal the absurdity of a centralised favouring of a roll-out of fibre as the broadband solution.
Both the suggested charges to Telstra and Vodafone, and the threatened auctions, confirm Conroy is aware that it is the structure (wireless versus fixed services) and location of demand that are the burning issues, not the need for an almost uniform force-feed of fibre via the NBN.

The inadequate bandwidth and speed in coastal and rural communities suggests auction demand for the bandwidth should be substantial. But uncertainty across the broadband market is stopping private investment and making a mockery of current priorities.

Communities wait for the big-spending NBN to roll by, rather than localise a solution in a tender to the NBN that will fit with a national market. And as revealed in The Australian Financial Review yesterday, the charges demanded by Conroy for spectrum are far in excess of those charged in much higher density markets, with the minor exception of Hong Kong, which is blessed with an extreme density of mobile customers.

Public consultation on the issuing of 15-year spectrum licences closes on January 16 and the timing is right to reconsider the regional tendering process. Apart from the dash-for-cash given a projected $37 billion Commonwealth deficit, there are problems with Conroy’s approach:

The sheer inconsistency of competitively auctioning one element but not allowing competitive supply of a mix of wired, fibre, cable or wireless to be built in light of local assets and conditions (as in most foreign locations).

The imposition of a single model – NBN fibre for 93 per cent of us – when there is clear scope for competitive private provision area by area, without trashing existing assets and investor opportunities.

The resulting uncertainty facing market competitors, which is already killing non-NBN private investment, as we all wait for the Holy Grail of the NBN to pass our premise offering “free access” at taxpayer expense.

The simultaneous destruction of capital – copper and hybrid fibre coaxial (HFC) cable – and restrictions on marketing wireless. This existing and expanding capital could provide immediate and improved competitive services as part of the private nationwide upgrade of broadband services within an NBN-style framework.

Why not call tenders for the broadband rights for the many distinct areas, each with varying current endowments of existing services? Why should each area not be the basis for a tender for local connections that can blend into a competitive national broadband framework rather than a monopolistic NBN?
The minister is right to flag the option of competitive auctions – but not in a selective milking of the 800MHz band.

This piece incorporates material in an article published in The Australian Financial Review, 4th January, 2012