“It’s time to end the Punxsutawney paralysis”



“It’s time to end the Punxsutawney paralysis”

CommsDay Melbourne Congress

Langham Hotel, Melbourne

8 October 2014



Remember that movie Groundhog Day?

Bill Murray plays Phil Connors, a grumpy old arrogant weatherman sent to Punxsutawney, Pennsylvania to see if a rodent sees its own shadow.

Not surprisingly, Bill Murray’s character thinks the job is beneath him and he is just going through the motions. He is grumpy because he knows he is smarter and better than his boss, and he thinks he should be the boss. Remind you of anyone?

Anyway everything starts off all right. He wakes up, gets a cup of coffee, sees the famous groundhog, files the story and starts off on the road back to Pittsburgh.

Ironically, he then gets caught in a blizzard he failed to predict and has to go back to Punxsutawney for the night.

The next morning he wakes up and it’s exactly the same day all over again. The same people, the same story, the same song on the radio – Sony and Cher’s “I’ve Got You Babe”.

This happens day after day after day after day.

If you haven’t seen the movie don’t worry – all you have to do is look at what Malcolm Turnbull has been doing for the last 12 months.

The Government has now been in power for a year – and every day it’s the same story.

It goes something like this: the last government was terrible, Stephen Conroy is to blame for everything and we need to conduct a review into it.

Instead of I Got You Babe on the radio every morning, it’s another announcement about another review into the NBN.

It’s now getting ridiculous.

As I said last week after the latest report came out, we have now had almost as many inquiries into the NBN in the last year, as there have been into who killed JFK in the last 50 years.

Just like Bill Murray, it seems Malcolm just can’t move on.

Now you might say that this is just what politicians do, and we shouldn’t be surprised.

As Graeme Samuels said recently this is all about “political payback”. And he’s right.

But there are real consequences for the telco industry of having a government that is living in a time warp and obsessed with the past.

And that is, that the things that industry wants to happen aren’t happening. Let me give you a few examples.

In January Malcolm Turnbull promised changes to employee share schemes to help the start-up industry. It is now October, nine months later, and nothing’s happened.

In the same month he also promised legislation to enable crowd funding and we are still waiting.

A couple of weeks ago it was reported in the Financial Review that Australian companies are now going to New Zealand to get access to crowd funding because they’re are assuming it is going to be another year or two before we see anything here.

In February George Brandis released the Australian Law Reform Commission’s report on Copyright and the Digital Economy. Its key recommendation is the introduction of a flexible fair use exemption. The report argues that this “would make Australia a more attractive market for technology investment and innovation”.

It’s the sort of thing we should be looking at. Well guess what’s happened since February? Nothing. It’s just gathering dust.

The Government’s also got a flash e-government policy. But nothing has happened there either. Suzanne Campbell, the CEO of the Australian Information Industry Association, mauled the government the other day for dragging its feet on this. She said it’s been “a year of nothing that is transparent and obvious to us”.

The much touted reforms to the media industry now also apparently on the back burner.

All up – a lot of talk but not a lot of action.

And it’s the same on the NBN.

Malcolm Turnbull promised the negotiations with Telstra to get access to their old copper network would be “quick”. He said they would be finalised “by the middle of the year”. It’s now closer to Christmas than the middle of the year and we are still waiting.

He also promised that 450,000 brownfields premises would be passed by fibre by the middle of the year. He missed that target as well. He fell about 70,000 short.

The big one though was the promise that by the end of 2016 everyone in Australia would have access to 25 megabits per second. Tony Abbott made that promise in April last year, and Malcolm Turnbull ditched it in December.

It is a massive, rolled gold broken promise and the Government should be punished for it.

I have been critical of the speed of the roll out of the NBN when my party was in Government. It was too slow. And 12 months later it’s still too slow.

I am not the only one saying this. As David Buckingham the new head of iiNet said recently:

“We are furious about it. NBN needs to get on with the roll out. We are sick of waiting. Speed up their operational roll out, speed up negotiations, they really need to speed up everything. They really need to start unleashing the plan that they keep putting in front of us.”

So why has all this happened? Why has the government promised so much and delivered so little?

The answer to that is because for the last 12 months they have been obsessed with review after review after review.

What Graeme Samuels called “political payback”. What I call Punxsutawney paralysis.

Too many people focused on review after review, and not enough focus on actually doing the job, and building the NBN.

All of this has been made worse by the fact that most of these reviews either – get it wrong, add little value, have their recommendations ignored or rejected, or are just plain old biased.

Sometimes it’s all of the above. The best examples of this are the reports written by the Vertigan Panel. A group made up of former staff of Malcolm Turnbull, former advisers to Malcolm Turnbull and some of the biggest and most outspoken critics of the NBN.

And what did they conclude? Funny enough they concluded that everything Malcolm has been saying is right. Who would have guessed?

I have been critical of the Cost Benefit Analysis because it is tainted by the people who wrote it. Malcolm Turnbull promised before the election an independent Cost Benefit Analysis conducted by Infrastructure Australia. This is not that.

But I have also been critical of its conclusions. As you know, a cost benefit analysis is only as good as its assumptions. If you put the wrong assumptions in you will get the wrong result. And that is what has happened here.

Let me give you a couple of examples.

First, the Cost Benefit Analysis says the cost of building Fibre-to-the-Premises is going up. In fact the reverse is true. As leaked documents out of NBN Co a couple of weeks ago prove, NBN Co is now rolling out FTTP cheaper than ever before.

In Melton Victoria this year NBN Co rolled out fibre to an FSAM 50 percent cheaper and 61 percent faster than in comparable suburbs in Victoria.

When this was exposed in The Age last month, NBN Co’s first reaction was to deny there was a trial. Then they issued a statement retracting that, admitting it was true and even saying they were rolling out fibre even cheaper and quicker in other FSAMs.

Here’s another example. To justify their claim that the cost of fibre is going up the Vertigan Panel tripled the cost in their model of operating FTTP. But in their modeling of the Government’s Multi Technology Mix, they have only increased opex costs by 12 percent.

Just think about this for a minute. In their modeling of FTTP v MTM they have jacked up the assumed cost of operating a fibre network by 180 percent but they have only increased the cost of operating and maintaining the old copper and HFC network by 12 percent.

This is absurd just on face value.

Here’s another example. The Cost Benefit Analysis assumes that the median family will only require 15Mbps by 2023.

That’s despite the fact that already 58 percent of people using the NBN are ordering 25Mbps or more.

This bizarre assumption has been mercilessly discredited and ridiculed by people right across the sector.

One of those people was David Buckingham. He said in August:

“We’ve got 40,000 NBN customers and they’re not all early adopters. Seventy per cent of them are using speeds of more than 12 megabits per second and 30 per cent of them are taking 100 megabits per second. My general information from the customers we have is that they’re going onto [the NBN] for the boost in speed so I don’t think 15 megabits per second in 2023 will be enough.”

Even Bill Morrow, the CEO of NBN Co, has very publicly questioned how they came up with this assumption, and said it would be insufficient to meet his family’s needs.

He told Radio National the day after the report came out:

“For me… as an example, I have a 21 year old and a nineteen year old, so two uni students in my house. I have an 11 year old and a seven year old and two adults that are active on the internet, and I don’t think that would be enough for us, and not because it’s a speed issue but because we’re sharing that, so if we are all active in a video intensive area, then clearly it’s going to be insufficient to meet our particular needs.”

He is not alone.

The report is full of these sort of dodgy assumptions. And this is the problem. As I said before, if you put the wrong assumptions in you will get the wrong answers.

If you put in different assumptions about the cost to build FTTP and the time to build it and expected demand then you suddenly get a very different result.

The Cost Benefit Analysis is full of bad assumptions, but the latest report, the one released last week, is full of bad recommendations.

Last week we woke up to the tune of – the National Broadband Network Market and Regulatory Report.

This one is a doozy. It recommends everything from chopping NBN Co up into a number of different companies to scrapping the cross subsidy for the bush.

A leaked copy of the report fell off the back of a truck last week and landed in my office. On Wednesday afternoon I released the report and I called on Malcolm Turnbull to reject the recommendations in it.

He has rejected some of them, but not all of them.

The one I am most worried about is the recommendation for NBN Co to charge developers for the cost of installing fibre to the premises and allowing developers to pass this on the new home owners.

Lets just call this for what it is – it is a new NBN Tax. The Government promised no new taxes. Well, if they do this it will be another rolled gold broken promise.

It will also be unfair. It will mean if you buy an existing home you don’t have to pay anything extra for the NBN. Your taxes pay for it. But if you buy a new home, you have to pay for it twice.

And how much could this cost? In the Senate Inquiry into the NBN last week the Vertigan Panel admitted that they haven’t actually modeled this. Well the Property Council of Australia has, and according to them it could add up to $4,000 to the price of a new home.

Housing prices are already very high. And who usually buys new homes in greenfield estates? Young home buyers. Often their first home, with a big mortgage and kids on the way. The last thing they need is a new NBN tax. The government hasn’t ruled it out yet, and they should.

The report also gives the green light to companies like TPG competing with NBN – and racing it down the street.

My view on this is simple.

The customer access network in fixed telecommunications is a natural monopoly. Malcolm Turnbull has said the same thing.

It’s like electricity. The vertically integrated electricity market has been broken up into retail, distribution, transmission and generator markets.

But competition hasn’t been introduced in the distribution of electricity – the poles and wires – and there’s a simple reason for that.

In a natural monopoly out put can be delivered more efficiently by one operator than two or more.

NBN Co made this point in its submission to the Harper Review earlier this year. They said:

“Fixed-line broadband networks often display natural monopoly characteristics due to the strong presence of economies of density (arising from large sunk costs and very low marginal costs) and economies of scale and scope. As a result, the extent to which infrastructure based competition is efficient and sustainable is limited.”

They also said this:

“Where a natural monopoly exists, competitive entry by a second firm may be privately profitable but is economically wasteful.”

That is exactly right.

It’s also what NBN CO’s business case is built on. If other companies roll out fibre and beat NBN Co for business this will create a very serious issue.

As the Chairman of NBN Co Ziggy Switkowski has said, the impact on NBN Co could be “severe”. He told a Senate Committee in March:

“If organisations like TPG capture perhaps 500,000 high-value customers, that would have an economic impact at the five to 10 per cent level in that case alone…..If you amplify that with the inclusion of other infrastructure based competitors, the economics of NBN would be severely impacted—and it could be allowed, depending on the government’s policy in this area.”

Malcolm Turnbull has also admitted on the Alan Jones program on 29 April this year that if TPG continues to do what it is doing “the economics won’t be as good” for NBN.

Despite this he hasn’t taken any action to mitigate this risk and this report suggests they are not going to.

If they don’t, this will be a self-inflicted wound. It will hurt the economic fundamentals of NBN Co and Malcolm Turnbull will have no one to blame but himself.

I have been very critical today.

But the most scathing criticisms of the last 12 months haven’t come from me, they have come from the telco industry itself.

The best example of this is the Competitive Carriers Coalition. It represents companies like Vodafone, iiNet and Macquarie Telecom.

Last week after the latest NBN report they said this:

“Most of the Vertigan recommendations represent nothing more than rehashed, discredited theoretical arguments promoted by opponents of regulatory reform and the NBN.

The inquiry has been an expensive distraction that has done little more than create uncertainty and disquiet across the industry during a crucial period of the transition to a new broadband network.

The time for historical revisionism and point scoring is long gone.”

Very true.

In the last 12 months we have had 8 different reports into the NBN, costing more than 12 million dollars.

Even the most ardent supporters of the government must surely now realise that this is getting ridiculous.

Malcolm Turnbull can’t keep hiding behind more reviews or the ghost of Stephen Conroy.

He’s now got 8 reports and no excuses.

It is time to stop blaming and start doing.

It’s time to end the Punxsutawney paralysis.

In Groundhog Day Bill Murray eventually got it right.

He realised that what he was doing was wrong and he changed.

He realised that to get out of the time loop he had to stop focusing on the past and start focusing on the future.

Malcolm needs to do the same thing.

It’s time to move on.

It’s time to focus on building the NBN.