Catallaxy Files

We haven’t had a whack at the NBN in, gee, it must be a couple of weeks.

Gillard’s latest contribution in the OZ today  is a good excuse to get back to it.

“A government-commissioned report by Greenhill Caliburn, released on Monday, warned that the booming growth of wireless broadband could have “significant long-term implications” for the NBN Co’s fibre network, which, it is planned, will connect 93 per cent of the nation.”

No way, says Gillard.

“These are complementary technologies and I believe people can understand that from their own daily lives,” Ms Gillard said yesterday. “There are times when we want to be on the move and have the technology with us. There are times when we’re in our own homes where the quality and speed of downloads is pivotal.”

If she is this good at forecasting technologies and customer use of them over 30 years (or whatever the life of the NBN has to be) she is in the wrong job. She could make squillions in VC. But of course, she isn’t.

It is frightening how ignorant and arrogant our politicians are on matters of technology. Not only Gillard – they all do it.

A simple rule, that just about everyone in business understands  -

When technological change is rapid and the direction uncertain, don’t make decisions that depend on you being able accurately to forecast the future a long way ahead.

There is a fascinating battle going on between Apple and Google. They were once very close – until a year or so ago Google had a couple of people on the Apple board. Now they are arm-wrestling for control of the next generation in consumer electronics.

The new battlefield, where most of the action is happening, is mobile – phones and tablets and whatever else they invent next. (I don’t think Stephen Conroy got the memo about that). Apple has built a walled garden. You can only use the  iOS operating system on an Apple product and you must buy apps for it through the iTunes store. The iTunes store won’t accept apps that compete with its own products.

Google’s mobile OS, Android, is open source. Anyone can put it on a mobile device without charge and modify it. The Google Apps Market will list just about anything.  Android has got the support of most phone manufacturers, other than Nokia and Blackberry. There are now many more phones being sold with Android than with iOS.

Apple has long believed in a walled garden. It is said that Steve Wozniak. who invented the Apple II and was the real technical brain behind Apple at the start, left after a dispute with Steve Jobs over that. When Jobs rejoined Apple in 1997 it had licensed its desktop OS to a few other companies. Jobs quickly bought back those licences.

Tim Wu’s book The Master Switch tells the story of information technology in the US, staring with the Bell system and the telephone. He traces what he calls “the cycle”. A technology starts out open – anyone can get into the business – and eventually one business or a small cartel gets control. This has happened with telephones, radio, TV and films, he says. Those in control fight to keep out competition – capture of regulatory agences often helps – and try to stop any disruptive technology that would change the game. I had not realized that FM radio was developed for RCA but RCA managed to stop it for nearly 20 years because of its near-monopoly in AM.

History never repeats itself exactly but all this is fairly similar to the Apple/Google battle.

I have no idea how it will play out. I used to be an Apple fanboy and still use several of its products. But Google is doing more interesting stuff. I’ve just bought a Google phone (Nexus S) and find it great fun. Not as elegant as my wife’s iPhone but I think it is pushing the technology faster.

The game might change if Jobs’s leave from Apple is permanent. Apple depends on a regular flow of innovative products from its own stable. Google is more a facilitator for other’s innovation. Jobs has been so dominating at Apple that it is quite possible that there is no one with his enterprise to take over. Plants don’t grow under the shadow of large trees and all that stuff.

Another thing I became convinced of after reading The Master Switch is that the government-owned NBN is very dangerous. Governments can rarely resist the temptation to fiddle in markets and with the NBN the government will have a big and very costly monopoly to protect.

If I am right and mobile is the next frontier, what’s the bet that the government won’t be in a hurry to allow LTE? It is already being installed in major cities in the US but is not even close here.

The NBN business plan is here. The pricing section contains this table

The following table describes wholesale access pricing for NBN Co services.

Table 1 – NBN Co monthly wholesale access pricing (source: NBN Co Corporate Plan, Dec 2010)

I don’t know what retail prices this will turn into, though I’ll bet there will be ISP bashing alleging “price gouging”

I pay (ADSL 2+ with TPG) $50 a month and get a speed of 10-15 mps. My guess is that the retail price under NBN will be higher than this.

The upload speeds are pretty much what they are now with ADSL2+. I believe that demand for higher uploads will increase as users do more in the cloud. I have a backup in the cloud – it took me about two weeks for the first one. Fortunately TPG does not charge for uploads.

The plan contemplates a total capital expenditure of  $35.9 billion (that excludes the $11 billion going to Telstra) with the government contribution at $27.5 billion. The balance will be borrowed. Does that really keep it off the government’s books?

Apologies in advance to those who believe that Catallaxy should stay away from all this nerdy stuff. I do find it fascinating.

The opposition will be in a difficult position over the NBN over the next three years.

It seems a majority of the population believe it is a wonderful thing the government is giving us and Turnbull is unlikely to change anyone’s mind in the short term. So the opposition is going to look and sound very negative. At the next election voters will be told by the government that the coalition wants to snatch their broadband away. If in three years some people have got fibre and the rest are waiting, a threat to stop the rollout will not be popular.

Perhaps by then the early adopters will have seen that they have lost their ADSL connection. Presumably phone and pay TV will also be delivered by the fibre. If they are charged anything like the real cost there should be some grumbling. Even rioting in the streets perhaps. But more likely the NBN company will be told to hold wholesale prices down for some time. That will be popular politically but will make it just about impossible to get private investors. (Of course the government could require super funds to contribute to nation building by investing in NBN but I don’t think they would dare).

So if the coalition wins government in three years time it will inherit the problem. With all the delays, cost overruns and the usual cockups we see with governments executing major projects.

What does the coalition do then? Seal it off ? Sell it (or give it away) as an unfinished project? Finish it then sell?

Not easy. I hope someone is thinking about all this.

There is a very old joke (from the 50s I think) about the Communist Party organiser telling the crowd  how wonderful it will be under Communism. “When the revolution comes comrades, you will have caviar for every meal”

One fellow puts up his hand and says “But I don’t like caviar”

“When the revolution comes comrade you will have caviar whether you like it or not”

Reports earlier this week noted that only 50 per cent of homes in the Tasmanian towns of Midway Point, Scottsdale and Smithton had opted to have broadband fibre optic cable installed.

But Senator Conroy says the debate about take-up has become irrelevant, as eventually anyone who wants a fixed line will have to use the fibre network.

“The deal that we have with Telstra is that they are decommissioning, closing down the copper network,” he said.

“To have a fixed line in what we call the 93 per cent footprint, the only way at the end of this process you’ll have a fixed line is on the NBN’s fibre network.

This from the ABC news.

I reckon the NBN might just win this election for Gillard.

There is a strong swell from younger people (and some old enough to know better) that if an ALP government will give them super high speed internet, that’s enough for them. Abbott is being positioned as a luddite. If you mention the $43 billion you get an answer like “no-one questioned the cost of the Snowy River Scheme”.

I gently pointed out to a friend living in the bush (sorry, rural and regional Australia) that whoever wins she will not get high speed internet in her lifetime. Though she is almost as skeptical about politicians as I am, she was willing to trust that promise.

The best discussion on the subject I have seen is Grahame Lynch in today’s Australian. But I don’t think anyone is listening – present company excluded, of course.

If this does win it for Gillard and my friend and others do not get fibre before the election after this, will they accept the promise again?

And by the way, anyone know about government accounting? How long can they keep the cost off-budget, on the basis that the business will eventually be sold? If it was a company, auditors would require some sort of impairment charge…

One of the (many) reasons governments should not start or run businesses it that they have an irrestible urge to rig the game in their favour. Competition is wasteful and competitors usually try to just take the best bits of a market.

The NBN Implementation Study suggested that there could be a levy to discourage its competitors (Telstra) from cherry picking by supplying an optical fibre service to businesses in CBDs. “If we must supply fibre to 90% of the population, including many people who don’t need it, Telstra should not be allowed to provide it to those who do need it”. (My paraphrase).

Optus agrees. If there is to be cheap rent about, you can bet that companies will seek it.

I do hope that Telstra will not sell its pipes and ducts to NBN and remain as a competitor, but I suspect that NBN cannot afford to have competition so the government will make Telstra an offer it can’t refuse.