We’re broadband sluggards

This story a couple of days ago caught my attention:

AUSTRALIA is two years behind comparable developed countries in broadband services despite an accelerated uptake that doubled subscribers in the past year.

The advent of less expensive entry-level products drove demand, says the annual broadband survey of consulting giant AT Kearney.

However, the uptake of broadband services still lags countries such as the US, Canada and Sweden by a wide margin, it says.

The report says about 10 per cent of Australian households and 30 per cent of small to medium enterprises have broadband access.

Why are we so slow on the uptake? Australians have generally been very early and enthusiastic adopters of new technology, from PCs to mobile phones and VCRs. Why the difference with broadband Internet?

The simple answer is price. Broadband is significantly a little more expensive in Australia than comparable countries (see comment box discussion). And why is that so? I suspect the answer is a single word: Telstra.

Telstra has monopoly control of the great bulk of Australia’s landline infrastructure, and is also a major retail Internet Service Provider. It charges other ISPs fees to use its landlines, at rates which effectively put a floor under the prices ISPs can charge for broadband access. And that floor price is significantly higher in real terms than broadband charges in comparable countries. Telstra claims that the prices it charges are fair, and reflect the cost of maintaining the landline infrastructure, but the international comparisons suggest otherwise.

Telstra also has a major shareholding in the main cable TV operator Foxtel, even though both the ACCC and a recent Senate committee report have criticised this as seriously anti-competitive. Australia is said still to have a significant optical fibre cable overcapacity on the eastern seaboard, as a result of the botched introduction of cable TV in the early 90s and the competitive cable rollout that nearly sent Optus broke. Yet Foxtel makes no attempt to offer broadband internet service via its cable network. Instead, its major shareholder Telstra offers a cable broadband option via its ISP Bigpond, using Foxtel cables where available. But Telstra carefully keeps the price of it cable broadband option in lockstep with its ADSL broadband options, to avoid undercutting its own market.

In a normally competitive situation, you would expect Foxtel to be offering its own broadband Internet plans at significantly lower prices, because it can do so using existing under-utilised TV fibre optic cables at a very low marginal cost. Moreover, Foxtel/Murdoch is one of the world’s largest entertainment and news content providers, so you would expect it would make commercial sense for it to multiply the options for delivery of product to customers. Video-on-demand is surely the way of the future, and expanding domestic broadband connection penetration is the way to achieve it. Telstra should be forced to divest its shareholding in Foxtel.

Telstra’s indirect cartel-like control of all other ISPs through controlling the price charged for landline access is even more iniquitous. There are certainly some ISPs (e.g. iinet’s Bliink) that manage to offer some broadband options that are arguably better value for money than Telstra. For example, Bliink’s unlimited download 512kbps option for $49.95 per month is significantly better value than Telstra’s comparable option which costs $89.95 per month. Bliink’s option has a 6GB monthly limit before downloads are cut to dialup speeds, whereas Telstra’s limit is 10GB, but the great majority of customers will seldom if ever exceed 6GB, so Bliink is much better value for money.

In most other respects, however, other ISPs are forced to charge much the same as Telstra. Certainly no-one as far as I know has been able to undercut Telstra’s entry-level ADSL broadband price of $29.95 per month. But Telstra’s entry-level pricing is itself part of the problem, I suspect. The monthly download limit on this product is a measly 200MB. Now most potential new broadband customers wouldn’t have a clue how much bandwidth they’re likely to use per month, and I strongly suspect that much of the increased interest in broadband (connections have doubled), since Telstra introduced its current pricing regime about 12 months ago, has come from people taking up this cheap entry-level option.

The problem is that almost everyone will drastically exceed 200MB in most months, and end up paying 15 cents per megabyte for every bit of useage over that limit. The only way to avoid exceeding that limit is to avoid using the Internet for listening to music or watching videos, and to strictly ration viewing of static web pages as well. But of course, that completely defeats the benefit of having broadband in the first place. And it’s an impossible discipline to achieve where you have children or teenagers. I suspect there are huge numbers of new Telstra broadband customers who’ve signed on to the $29.95 plan, are now receiving huge Bigpond accounts each month, and are telling all their friends that broadband is a rip-off that they shouldn’t touch with a barge pole.

I reckon there’s a respectable argument that Telstra’s marketing of its $29.95 entry-level broadband option is misleading or deceptive conduct within the meaning of the Trade Practices Act. Be that as it may, I have no doubt that it’s inhibiting the takeup of broadband in Australia. I actively warn CDU online external law degree students against selecting an entry-level plan. Each one of our streaming audio law lectures is about 15MB, and full-time students must listen to at least 16 of them every month. Thus they exceed the entry-level download limit just on that source alone!

Fortunately, there are some developments on the horizon that may well break Telstra’s effective monopoly once and for all in the near future and ultimately lead to a significant price drop, not only for Internet but telephony as well. I’m referring to the imminent (and current in Sydney at least) introduction of wireless broadband by two different systems, iBurst (being marketed by a consortium of ISPs including Ozemail) and UnWired. This article discusses the two different systems.

Both systems operate by retrofitting “non-line-of-sight” wireless broadband receiver/transmitters to existing mobile phone towers, and both therefore offer varying degrees of wireless mobility. More importantly, they do so without relying in any way on either Telstra’s landline infrastructure or Foxtel’s optical fibre cabling. Consequently they won’t be subject to Telstra’s cartel-like price control, and will be able to compete aggressively on price as soon as they’ve installed and covered the cost of installation of mobile phone tower retrofitting in each capital city.

At present, it’s difficult to gauge exactly what prices iBurst consortium members will be charging. As far as I can see, the only one which has so far published a comprehensive price list is Veritel, whose prices range from $79.95 for a 200MB monthly download limit (totally uncompetitive and a complete rip-off for reasons discussed above) to $174.95 per month for a 1000MB limit (barely adequate for most users and even more uncompetitive). If this is typical of the prices iBurst consortium members intend charging, they have Buckley’s chance of achieving significant enough market penetration to pay for the cost of mobile phone tower infrastructure in the foreseeable future.

UnWired looks much more promising. Its initial price structure is roughly the same as existing ADSL and cable broadband options and arguably already superior in some respects: $34.95 for an entry-level product at 256kbps and 300MB monthly download limit; $44.95 for 256kbps with a 1GB monthly limit (a reasonable and affordable option for lots of people); and $89.95 for 512kbps with a 10GB monthly limit.

I reckon we won’t really see the sorts of consumer takeup rates of Europe, the US and Canada until the price of 512kbps and 1.5MBps large download limit options comes below $40.00 per month. It’s only with those sorts of speeds and download limits that people begin experiencing the real benefits of broadband in terms of full-motion video and high quality voice-over-IP services.

Those are the potential benefits that interest me, because my job involves developing and co-ordinating delivery of a full law degree program over the Internet. Many of our third and fourth year skills-based subjects (like Advocacy, Mooting, and Negotiation and Mediation) will be very difficult to deliver via the Internet unless higher speed broadband becomes readily available and affordable over the next 2 years or so. These subjects require visual as well as verbal interaction, and so can’t be taught satisfactorily without reasonably reliable full-motion video interaction. Our major provider Optecs has an excellent range of multi-screen video chatroom products, but they don’t work smoothly enough for our purposes with Internet connections any slower than 512kbps. I’m sure there must be hundreds if not thousands of other corporate and educational users whose plans and productivity are being significantly restricted by the uncompetitive pricing and availability of high speed broadband services in Australia. That’s why I’ve got my fingers crossed for UnWired and (to a lesser extent) iBurst.

PS – If you’re actively interested, iBurst already covers just about all of Sydney, and intends covering Melbourne, Brisbane and Canberra by the end of the year, and other cities progressively through 2005. That’s very impressive, but useless for practical purposes while their prices remain so uncompetitive. UnWired already covers just about all of Sydney as well, but their plans to expand to other cities are vague and non-specific (subject to takeup/demand). If you’re in Sydney and looking for a broadband ISP, I urge you to look seriously at UnWired. You’ll be doing all of us a favour, by encouraging them to expand their coverage to the rest of the country.

PPS – This article from ZDNet highlights Korea’s extraordinary takeup rates of ultra-fast broadband (8Mbps or 6-8 times faster than the fastest available services in Australia). Those sorts of speeds are really exciting, because they allow high-definition full-motion video as well as high quality interactive gaming and various other possibilities. However, Korea has only achieved this through very substantial government investment in infrastructure and subsidies to private ISPs, not to mention the fact that Korea is small and densely populated, making it commercially feasible to rollout the sort of state-of-the-art fibre optic cable you need to achieve speeds like that.

I remain to be convinced that this sort of major government investment in ultra-high speed broadband infrastructure in Australia is either possible or desirable. While high-definition movies on demand and interactive online gaming would be very nice, it isn’t obvious that they will lead to major gains in productivity. Most of the productivity gains from broadband (education and training, video-conferencing and various other voice-over-IP applications) can be achieved with universally-available and affordable 1.5Mbps services. Ultra-high speed broadband will happen in due course anyway where population is dense enough to make it commercially viable. I suspect that will mean only Sydney, Melbourne and perhaps Brisbane, at least until wireless technology develops to the point of being able to deliver data at those speeds.

Update – The extraordinary and grossly anti-competitively incestuous interlinkage between Australia’s major Internet and media coroporations is highlighted still further by this story:

Sam Chisholm has swapped allegiances, dumping his directorship at Telstra for a seat on the board of Kerry Packer’s Publishing & Broadcasting Ltd.

However, Mr Chisholm, who is widely believed to have brought about the demise of former Telstra chairman Bob Mansfield and to have helped block a merger of Telstra’s advertising business, Sensis, with John Fairfax, will remain chairman of Telstra’s 50 per cent owned pay television venture with PBL and News Corp, Foxtel. …

Mr Chisholm, who has years of experience in free-to-air and pay television, also saw no problem in retaining his chairmanship at Foxtel, of which PBL and Rupert Murdoch’s News Corp each hold a 25 per cent share.

“Telstra has the right to appoint ¹ … obviously I know what I am doing in the pay television business … why would I stand down in six months time?” he said.

1. Foxtel’s chairman[↩]