Analysts have responded to the Federal Government's new NBN strategy with optimism, noting that while risky, the plan makes an important break from years of stagnation and promises an important new foundation for Australia's broadband future.
Analysts have responded to the Federal Government's new
NBN strategy with optimism, noting that while risky, the plan makes
an important break from years of stagnation and promises an
important new foundation for Australia's broadband future.
It made no sense to proceed with the original concept because it
was clearly going to get bogged down [in regulatory conflict]
Ovum's David Kennedy
Ovum research director David Kennedy, for one, sees the
announcement — which will see the government ditch its plans for a
fibre-to-the-node (FTTN) network and spend $43 billion over eight
years to build a national fibre-to-the-premises wholesale
infrastructure — as the best way for Rudd to put the government's
ongoing conflicts with Telstra behind it and focus on the
"It became apparent during the tender process that the FTTN
approach was creating a lot of problems and uncertainties around
Telstra's response to the use of its copper network," he explained.
"It made no sense to proceed with the original concept because it
was clearly going to get bogged down [in regulatory conflict]."
"This new approach simply cuts through all of that by building
out a brand new access network. It's achieving structural
separation of Telstra by another approach. It's a good outcome for
the industry, and a better outcome for the country."
Analysts at research firm Market Clarity were equally enthused
about the announcement, pointing to the decision to launch a
wholesale-only network as a sign that the new NBN was on the right
track. "It would have been inappropriate to have the government as
a retailer as it did when it owned Telstra," said Market Clarity
associate consultant Richard Chergwin. "This bid offers a chance to
align Australia's telecommunications infrastructure with that of
other national infrastructure."
IDC senior analyst David Cannon pointed out that the decision was
both a network investment and a way for the government to leave
behind a Telstra privatisation that had fundamentally failed to
deliver the benefits expected at that time.
"The government left the nation with a legacy 1900's network and
at the mercy of a private organisation which has done its utmost to
protect the revenues generated by the legacy network assets, which
they bought at cost plus interest," he explained. "This decision
will right the wrongs of the previous government's decision to sell
Telstra in the manner that it was done."
Yet Telstra shareholders can expect some turbulence in the short
term as the implications of the new NBN strategy and
Telstra's role in that strategy becomes clear. "You cannot blame
either party for the decisions they have made," Cannon explained,
"but there are many losers in this whole broadband mess. Telstra
shareholders have and will continue to suffer until its regulatory
exposure is mitigated."
Yet even as generally positive telecommunications
industry players come to grips with the implications of the new
network, observers are warning that the government faces a risky
and difficult value proposition with an investment that will never
be recouped simply through sales of basic internet services.
"Voice and wholesale internet is not going to cut it," said
Ovum's Kennedy. "They will have to have considerable other
applications to justify this. It's a nod to market failure, and it
goes back to that chicken-and-egg situation: do you build the
infrastructure and then develop the services, or is it the services
that draw investment into the infrastructure? The level of risk
involved in building this network is simply too high for the
commercial sector alone to bear."
IDC's Cannon pointed out the new strategy presented a real
opportunity for Telstra, which has substantial cash reserves it can
now shift from infrastructure investment to building complementary
This decision will right the wrongs of the previous government's decision to sell Telstra in the manner that it was done.
IDC's David Cannon
"Telstra is arguably the most advanced player in the country in
terms of over-the-top services, and will see the NBN as the reason
to keep driving its services play," he explained. "It will use its
large cash reserves to secure exclusive content and to enhance its
hosted unified communications offerings for both business and
Telecommunications analyst Paul Budde, long an outspoken critic
of Telstra's obstructionist policies regarding copper loop access,
sees the new network as a much-desirable alternative to the FTTN
and believes latent demand for broadband services will quickly see
the emergence of new, revenue-generating usage models.
"The government is taking the sting out of this by basically
guaranteeing the investment money for the project and also
indicating the use of the infrastructure for other sectors," said
Budde, who believes that healthcare applications such as
telemedicine will account for 25 per cent of the new network's
capacity within a short time after its eventual launch.
Education, energy and environment services could account for
another 25 per cent, Budde predicted, with "traditional telecoms and
internet services" making up just 25 per cent of the total
"It's not that these latter services have shrunk in volume or
revenue," he added. "This simply demonstrates the volume of
additional growth that will be unleashed on this open network
infrastructure. Healthcare can independently provide e-health
services to all Australians.
Media companies could do the same if,
for example, they want to finance their applications through
advertising. There won't be a gatekeeper involved who clips the
ticket of everything that is happening over the network."