Monday, April 07, 2008

Could the New Zealand Institute's Fibre Co Work?

For some time, I have believed that the structure of Australia's telecommunications industry and networks should have been sorted out before privatisation of Telstra went ahead, rather than after.

The problem is that when they're bent on a privatisation, governments are happy to take the biggest cheque they can get – something like structural reform of an industry might reduce the sale price, so it gets left on the shelf. Afterwards is too late: any government that halved the value of a private company would be in line for lawsuits. So it's too late to easily restructure the Telstra monolith.

New Zealand is grappling with a similar problem, which is why the New Zealand Institute has suggested an independent monopoly (the so-called Fibre Co) be put in charge of the last mile. That way, the NZI argues, the upgrade of NZ's customer access network can proceed without tensions between the incumbent and its competitors getting in the way.

A long time ago now – back when Australian Communications was in publication, and therefore in the late 1990s – I advocated a very similar structure for Australia, with the wholesaler existing as a monopoly whose shares were owned by the carriers using its infrastructure.

Since I'm an advocate of such a model – well, since I was prepared to consider such a model as viable – I'm going instead to ask the opposite question: what's wrong with the idea of a wholesale infrastructure monopoly

1) Bureaucracy

The biggest problem is that there are more than 150 carriers in Australia. Some of them might not need or want membership of a Fibre Co, but even 50 companies might prove unwieldy, with different agendas, commercial imperatives, and geographies to be serviced.

Without offending people on the other side of the Tasman, New Zealand has a much smaller market. There are fewer carriers to participate, and there's less geography to cover; so a Fibre Co might well be manageable.

2) Clout

A simple “shareholding by size” model has this against it: the Fibre Co would be at risk of being under the control of its largest shareholder (which is also its largest customer). So there's a legitimate question about the degree to which one carrier's interests should dominate the process, versus the degree to which minor carriers should influence decisions reaching far beyond their own sphere.

3) Flexibility

Some commentators in New Zealand have criticised the Fibre Co model as a “one size fits all” proposal. It may be so – I haven't yet read the entire New Zealand Institute report – but that doesn't mean any implementation of Fibre Co has to be inflexibly chartered to deliver “this solution and only this solution”.

For some reason, people treat consumer telecommunications as a different creature to business telecommunications. Any sensible business starts building its network by defining its requirements: work out the applications you need to support, and build the network to support those applications. But in the consumer world, people insist on defining the technology first, without reference to requirements.

If a government were to charter the establishment of a Fibre Co, it should do so without reference to a particular technology. Rather, it should mandate a simple charter of requirements, and leave the infrastructure owner to meet those requirements with whatever technology best fits the circumstances.

But there is a second “flexibility” issue – one that goes with the structure of a Fibre Co. If the structure is too difficult to manage, bureaucratic, or too dominated by narrow interests, then inflexibility may be the result.

Can it be done?

The answer is “yes”. A Fibre Co could be made to work, and we can even see an example in Australia of a co-operatively managed carrier, in which there exists dominant participants and minor participants, but which has a clear enough mandate so that it stands as a success story of the industry.

It's called AARNET.

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