23/11/2009

Em Debate:

The Australian Broadband Plan and Brazil   Octavio Sampaio Consultant John Costa Consultant

 

 

Brazil and Australia share similar challenges in readily providing cost-effective world-class broadband to people widely spread over a large and geographically diverse land mass, even though they differ significantly in per capita incomes and in their stages of network evolution.. Both are involved in plans to improve their broadband capabilities, with Australia at a more advanced stage.

 

In April this year the Australian government announced plans to bring fiber broadband at up to 100 Mbps directly to 90% of the population in eight years, with the remaining 10% served over the same time at 12 Mbps using different technologies. This plan has been frequently cited by members of the Brazilian government involved in a broadband plan for Brazil. What are the basic components of the Australian plan and to what extent could it be adopted (or considered) in Brazil? This article provides some answers.

 

The motivation of the Australian plan lies in the recognized inadequacy of existing broadband capability, which is at odds with long standing government policy in favour of the provision of world-class communications infrastructure needed for social and economic wellbeing and equity.

 

The access speed provided for in Australia of up to 100 Mbps proves to be much higher than that expected from a Brazilian plan, and furthermore uses fiber to the home (FTTH) as a means of transport. In Brazil, there are talks of 2 Mbps using DSL technology over twisted wire. Note that Australia's own government initially thought about using 12 Mbps fiber to the node (FTTN), but changed its mind after receiving advice from an expert group it appointed.

 

The change was attributed both to the need to have an evolution path for higher capacities required for the future and also to the estimated much higher cost of upgrading later. The coverage of the plan includes the whole Australian population, with 90% served by fiber at up to 100 Mbps.

In Brazil, the contemplated plan has a different character, only offering broadband to much of the population that does not have it. Combined with what is already installed today or in the near future, is expected to cover nearly 100%, or at least many more than today. In addition, the Brazilian plan appears to mostly consider just near term needs, rather than both the short and longer term as in Australia.

 

Significantly, service provision in the Australian plan will be “kick started” through a joint public/private company called the National Broadband Network Company, or NBN Co., initially with 51% Government ownership. Although majority Government owned, it is intended to operate at arms-length from Government, directed by its own CEO and board. Furthermore it is the Government’s stated intention to sell down its share within 5 years of successful completion of the NBN over 8 years.

 

This company would act only as a wholesale capacity provider, selling network capacity to other companies, including both incumbent Telstra and other providers, which would resell this capacity to end users. In Brazil a new company under consideration would apparently provide both service to the end-user and sale of wholesale capacity to carriers, although this is an aspect of the plan yet to be clarified.

 

The cost of the Australian plan was estimated at 43 billion Australian dollars, or about R$ 69 billion. The basis of this estimate has not been disclosed. The financing of this investment includes the government $ 4.7 billion previously approved for the original plan based on the more modest FTTN, the remainder being financed by private equity together with Australian Infrastructure Bonds and, in the case of purchase of existing assets such as already installed fiber networks ducts and trenches, with shares in NBN Co.

 

The investment cost contemplated in Brazil includes only equipment necessary to activate the pre-existing fiber infrastructure of public companies that would be used to form the backbone of the network, a cost estimated at $ 1.1 billion. This value would not be comparable to the Australian plan, as it does not include the last mile component needed to reach the end user. Such investment would in part use the funds allocated to Telebras and partly receive funds from the FUST Universalization fund.

 

Major regulatory changes have been proposed in Australia in parallel with the announcement of the national plan for broadband. After a period of public consultation, the proposed changes were consolidated and transformed into the bill currently under consideration by Parliament. The main change is the structural separation of incumbent Telstra, yet to be approved. Another is further strengthened Universal Service obligations on Telstra. In our case, no proposals for regulatory change have been presented in Brazil in connection with the planned new company.

 

It should be noted that whilst NBN Co is already operational with a CEO and Board many of the details of the Australian plan are yet to be clarified and made operational. In order to facilitate NBN the government hired a consortium of McKinsey and KPMG for an Implementation Study to be completed in February next. In particular the way that Telstra is to be split and its network assets potentially included in the NBN are currently the subject of intense negotiation between the Government and Telstra.

 

To be cost-effective the NBN needs Telstra assets as much as Telstra needs reasonable compensation for those assets. A further issue yet to be resolved by the Australian Government is how the structural separation of Telstra will impact the future supply of fixed line services since these are currently mostly supplied by Telstra.

 

Given the above, what are the meaning and lessons of the Australian plan to Brazil? In practice the main differences appear to be the long-term time frame of the Australian plan, the broad regulatory review that accompanies it, its well established funding basis. The Australian plan has been in gestation and under study for much longer, more deeply over the last four years and even more intensively since the elections of late 2007.

 

In fact, one of the lessons of the Australian plan is in the complexity inherent in a national plan for broadband and the time and iterations required for its elaboration. The plan highlights the need to think in the long term, ten years into the future and not just a year or so ahead.

 

Plans for the medium and long term could be developed to see where Brazil wants to be firstly at the time of the 2014 World Cup and then five years beyond. These plans should establish among other things how we can also offer service with wireless technology in the future for those many people in Brazil, unlike in Australia who might not be able to afford to pay for access via fiber. They should also include a major reassessment of Brazil’s regulatory structure in order to establish whether it provides the right incentives to substantially increase access speed and the population served, and reduce broadband pricing over the decade ahead.

 

One of the most attractive features of the Australian plan lies in offering service at the wholesale level to all providers on an equal basis. This importantly contributes to competition in a more level playing field between all service providers of different sizes. This feature is referred to in the Brazilian plan, although details are still unclear. It could

become an important element in bringing broadband access to areas not served by the incumbents, if the new backbone in fact offers access points in areas not served previously. Additionally it could help to reduce costs in areas already served.

 

The reasons that led the government to a broad intervention in the broadband market are another aspect of the Australian plan to consider. Essentially there was a lack of alignment between the needs of the country as seen by the government and what the operators were planning to do, and especially the way in which Telstra was proposing to supply broadband. More specifically, the incumbent was not willing to invest commercially in a next generation network based on fiber if it had to allow access to its competitors, which was considered essential by the Australian Government.

 

This divergence of views came into sharper focus when the latter requested proposals from operators for use of A$ 4.7 billion in government funds for an initial version of the NBN. Telstra’s somewhat reluctant submission was deemed technically to be non-compliant and thus rejected. Interestingly none of the remaining five proposals was subsequently considered to be adequate by the Panel of Experts named to review them, leading to the Government’s revised approach to the NBN. A similar divergence between private and public objectives could also arise in Brazil when considering next generation networks with capacities well above current levels.

 

In financial terms, Brazil’s situation is very different from that of Australia in many respects, however greater clarity is also needed in our plans, both in costs and financing. In Brazil’s case, the state owned backbone network implied objective is to only do the minimum necessary to meet those who do not have access to broadband.

There would be no purchases of existing assets due to the complementary, rather than national, character of our plan. There seems to be an expectation that local internet access providers - existing and new - must be mobilized whenever possible for construction of local networks.

 

Exemption from taxes to provide services to those currently excluded from broadband would contribute to their inclusion by helping to reduce rates for them. Access to FUST funds is expected to be offered for the required equipment to activate the planned backbone. If necessary this could presumably leverage FUST with loans to be repaid from future fund receipts. Additional participation of state and local governments could presumably be encouraged.
 
In summary, the Australian case shows that even in a developed country with high incomes there has been seen to be a need for government intervention to provide the country with adequate broadband access, equitably and at the higher speeds required for the future. Some of the ideas adopted in Australia could be adapted to Brazil’s case, including limited government participation, and only at the wholesale level. More broadly, it illustrates the need to think long term about Brazil’s future needs for Internet access.

 
Octavio de Abreu Sampaio is a Brazilian telecoms industry consultant based in the USA, who is currently in Brazil. He is the co-author of a recent report on Telecom 2020 in Brazil. He can be contacted at osampaio@telintnet.com.

 

John Costa is an Australian telecoms industry consultant based in Melbourne. He was recently in Brazil representing Australia at an Anatel telecoms regulatory course together with representatives of other countries. Whilst here he also spoke with FIESP members about Australia’s NBN plan. He can be contacted at johncosta@westnet.com.au.

 

 

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