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It's time for fibre to the home

Nick Beaumont, Information Age

18/10/2006 20:50:22

The Victorian ACS branch recently organised a fruitful seminar on IT's future in Australia. Inter alia, we discussed the idea of a national optical fibre network, variously modelled as Fibre to the Node (FTTN), Curb (FTTC), or Home (FTTH).

We agreed that a FTTH network, allowing extremely rapid transmission of voluminous data, is practical and affordable, and would have appreciable social and economic benefits. Home is a misnomer, FTTH connects premises: homes and offices.

A FTTH network has many actual and potential uses. Business use of the Internet is multiplying; emerging applications include videoconferencing and remote sales presentations. Internet use is growing in broadband households; emerging applications are multiplayer gaming (with an increasing use of 3D) and Voice over Internet Protocol.

FTTH's huge capacity would allow households to watch movies on demand; enjoy access to scores of TV channels (domestic and foreign) and easily interchange photographs and film clips (see www.youtube.com). It could enhance teaching, and, with appropriate safeguards, be used to transmit health records including digital x-rays.

One possibility is "always on", exemplified by a permanent link between the houses occupied by besotted grandparents and adored grandchildren. Most of the time the link will be quiescent, but will occasionally wake to swap data (e-mail messages, photos, and film clips), and carry audio or video conversations.

Videophone may be the norm in 10 or 20 years. Use of the Net may be affected if, as espoused by Google, the software we use and our data reside on Google's servers instead of our own cut-down PCs. There are lots of useful applications that require little bandwidth e.g. home security and transaction systems.

Moore's Law will operate to decrease prices and ingenious marketers will create presently unimagined applications. This is a trifle speculative, but the amount of data per line transmitted over networks is growing exponentially.

The ACS should take a proactive stance and firmly advocate Australia's building a FTTH network. There should be vigorous debate about how this is best done but less about the objective: establishing a high-capacity, high-speed, national electronic network that is easily and cheaply accessible by business and individuals.

Economic fundamentals dictate that the quickest and most equitable way to build a national fibre network is to have the Government do it. The Government should not to sell off Telstra, but defy an apoplectic commentariate and buy it back (suppressing gloating over its arbitrage profits). The Government should then retain the infrastructure components of Telstra, and hive off the peripheral businesses that sell products connected to and services exploiting the network. Here's why.

A national fibre network is a natural monopoly. It would cost about $4bn to install a FTTH network reaching all premises in major cities. The catch is that, once a network (especially a FTTH) is built, it costs little to run.

A private organisation building a FTTH it would have to charge consumers so as to recover its $4bn investment. Telstra has decided not to build a fibre to the node (FTTN) network because the ACCC ruled that it would have to sell access to its competitors at an ostensibly unsatisfactory price. A market in which one organisation owns essential infrastructure and competes with other companies to sell services dependent on the infrastructure cannot be fair.

Optus cannot compete on equal terms with Telstra when selling time on Telstra's network. Interminable arguments at the ACCC and the courts about what the network owner should charge its competitors for network use would continue.

Government ownership of infrastructure is not new -- consider roads. The Federal Government has taken responsibility for maintaining some major rail routes, selling access to locomotive operators. Privatisation of the lines themselves has been a disaster in Britain, where the operators took short-term views, neglecting maintenance.

Modern defence is as much about communication and information as weapons; the network would enhance our security. Only the Government could subsidise extension of the network to rural areas. A FTTH project would be risky for a private investor; FTTH might be superseded by a new (wireless?) technology, the government can bear this technological risk.

Four costs are relevant to a FTTH network albeit hard to ascertain definitively --

The cost of building the initial network: $4bn is a modest investment compared with Australia's gross national product of about $700B. The Federal government alone plans to spend $2.6bn on roads in the financial year 2006-7. There is plenty of evidence that fibre networks increase productivity and social well-being.

The cost of connecting an extra premise to the network: In greenfield Australian sites the cost of installation depends on many factors but is reckoned by one study to be about $1500 per house (www.mmv.vic.gov.au/uploads/downloads/BAO/aurorasept06.pdf ), about the same as a copper network. There are some savings: no TV aerial or satellite dish is required. This report estimates that retrofitting would cost about $5000 per premise. However, the Bernstein report (http://www.telcordia.com/products/fttp/bernstein_report.html) alludes to improved fibre laying techniques and estimates retrofitting at about $US1500 per premise. Some local authorities have arranged for new housing estates to be pre-wired. These estates have attracted a price premium.

The annual cost of maintaining a connection to the network: The Bernstein report notes that the cost of maintaining a fibre connection is about $US100 or 40 per cent of the cost of maintaining a conventional copper connection. The main reason is that maintaining fibre entails far fewer repairs or visits to the customer site. The author's house has separate connections for a telephone, broadband, and pay TV. These could be replaced by a single optical fibre.

The cost of using the network: The marginal cost of using a fibre network, once installed, is negligible. There might be a case for charging for services such as VoIP that require priority use of the network. Perhaps there would be congestion controllable by pricing if lots of Australian households wanted to simultaneously download a film from an overseas site. The government should not try to recover the capital cost of the network, but set charges for its use very low, even zero, so as not to discriminate against poorer households but to maximise public utility. A modest annual fee ($50-$100 per line?) would be much more functional than a fee for use.

The network should give Australians free national phone calls and free, fast, access to the Internet. Cheap communication enhances democracy and public discussion. Government should hive off peripheral businesses and encourage vigorous competition for equipment (fixed phones, mobiles, video phones, always on devices, PDAs etc, home networks) and services (e-commerce, shopping online, movies online, VoIP) that use the infrastructure.

The stasis over FTTN unfortunately characterises Australian governments' poor management of technology issues. Far too often, they have pandered to the owners of obsolete methods, and hampered entrepreneurs' and consumers' use of new technologies. This continued neglect will make Australia less competitive. The national fibre network aside, some of the worst examples are: • Digital radio is available in Britain and America, but not in Australia (except on an experimental basis). Valuable digital spectrum has been given gratis to incumbent radio networks; a sure and certain way of stultifying innovation and new services. • Policy on digital television might as well be written by the incumbent moguls. The Government will evidently preserve the incumbents' oligopoly indefinitely, killing consumers' access to new technology, new services, and cheaper prices. Viewers have been treated with contempt. The new media bill will strengthen incumbents and make it harder for entrepreneurs exploiting new technologies to get market footholds. • The National office of the Information Economy, once autonomous, has been folded into the Department of Finance. It is less able to provoke debate on technology issues. • Australians still paid far too much for telecommunications services. Calling London is intrinsically as cheap as calling Lilydale. • Protecting old industries. Our supposedly advanced automotive industry stamps out cars designed in Detroit. If we were not obsessed by protecting sclerotic industries, we might now be manufacturing lasers and computer chips.

I am therefore thinking of starting a new political party ("Technology Now") that will run Senate candidates committed to giving Australians access to the benefits of new technology, especially in telecommunications. If interested, please e-mail me at n.beaumont@gmail.com, or visit http://nickbeaumont.blogspot.com/.

A useful reference with a technical emphasis: Green, P. E. (2006). Fiber to the home: the new empowerment. Hoboken, N.J.: Wiley.

Dr Nick Beaumont works in the Department of Management at Monash University teaching Information Systems Management and Electronic Business. He worked in the computer industry for 12 years. His research interests include the effect of ICT on individuals, organisations and society, particularly in e-Business. His major current project entails research on outsourcing in Australia.