Cable and Pay TV

06 September 2011

A competitor and friend to NBN and the regions, says Professor Michael Porter.

By Professor Michael Porter

The ACCC “Statement of Issues” in July indicates opposition to the acquisition of regionally based Austar by largely metropolitan Foxtel. A final decision is due September 8.

However, while pay TV customers could benefit from minor border competition, the associated  need is for competition across all modes of digital communications, wholesale and retail. And it’s the same pay TV HFC cable and satellites that deliver wholesale and retail digital competition in key market areas.  

By avoiding fibre overbuild in metropolitan and regional areas, HFC cable can indirectly finance upwards of $20-30 billion of Commonwealth (NBN) savings. Savings that could allow “black spots” to be removed in regions and cities, as well as other infrastructure  projects. Thus we should not casually accept the NBN fibre rollout in areas that are unnecessary, given cable current and potential services.

The pay TV commercial model is about video content. But it’s the cable, fibre and wires and wireless frequency bands that deliver  that information; in packets of bytes of zeros and ones that are steered by computer switches at various nodes and stations. While “content is king”, it is immaterial in terms of transmission, except in terms of speed.

Choosing, sending and packaging the final product is about far more than fibre and its speed of light. Thus the real market boundary is not content based – all sorts of delivery and receiving devices are in play. What is wanted is competition across the four transmission doors – copper, cable, wireless and fibre. Not a state monopoly that terminates private competition.

There are two related  spends that  make the NBN model a blunderbuss. The first destructive waste is on Telstra and Optus to close down broadband access via copper (ADSL and VDSL) and particularly cable.

The combined saving including reduced construction cost could be $20 – 30 billion. Decommissioning cable and overbuilding with fibre destroys the chances of any decent return on NBN capital, correctly measured to include the proposed wastage of  cable capital.

Another need is respect for regional priorities. As Minister for Regional Australia Simon Crean stresses, NBN is all about regions and priorities.

Internet protocol television (IPTV) is competitive with pay TV, and is stored on many devices. IPTV is making entertainment competition a reality, but the ACCC worries about cable hurting the NBN business!

In July the Australian Communications and Media Authority (ACMA) report on digital convergence, “Broken Concepts”, notes that world best practice involves technology neutrality.

But the ACMA’s Minister Stephen Conroy rejects overseas experience, and mandates fibre for 93% of Australia! Forget regional priorities and budgets!

Most independent experts prefer that NBN Co requests tenders by location and speed, not technology. Regional markets, with support from private and public sectors could sort and blend bids and technologies, and deliver content competition.

If the ACCC rejects the  pay TV merger, which  would lower unit overheads, there will beless competitive pressures on other digital access to content through T-boxes and computers.

Customers want content, price and speed - and could not really care about delivery mode. By tolerating overbuild and decommissioning the ACCC inflates costs, and then judges service costs! The ACCC indirectly invites the pricing shocks that Internode announced – with costs for 100 Mbps over $100 far exceeding what is already available on cable.

Consider some facts. Existing HFC Telstra DOCSIS 3 cable offers 100+ Mbps to Melbourne customers of Telstra and Transact offers the ACT, Geelong and Ballarat similar deals, with plans on hold in other regions.

Take the example of Geelong, where Transact has a mix of cable, VDSL and fibre hardware, and is capable of servicing without subsidy, but would love governments to accelerate the rollout. Most residential streets are currently cabled, and offer up to 100 Mbps, and eventually 300 Mbps and even gigabytes.

What this probably means is that a Geelong NBN overbuild by fibre will create extra costs upwards of $250 million, plus household costs of connection. Not “decommissioning” cable could release funds to fix stadiums, transport, health and other infrastructure  needs. All this plus digital and content competition and fixing of “black spots”.

Nationally the NBN should be a wholesale network that builds on a mix of competing and changing technologies. Adding fibre in greenfield and other locations where demand  or inadequate cable and copper warrants it.

If NBN wishes to be commercially viable, it should invite all parties to bid for upgraded and expanded cable,wireless and fibre in metropolitan areas. NBN Co will then start to have a portfolio of competitive contracts and a better balance sheet owing to savings on fibre rollout – savings estimated at well over $20 billion.

Is this competitive digital dreaming? Not in the view of very many senior insiders. And yes, there may be light at the end of the fibre. I refer to new ACCC leadership under Rod Sims and an opposition policy now supportive of infrastructure competition.

Dr Michael G Porter  is a Research Professor of Public Policy at the Alfred Deakin Research Institute.

Alfred Deakin Research Institute Alfred Deakin Research Institute

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