Why the Telstra/NBN deal matters

Telstra and the Federal Government today announced an $11 billion deal that will see the NBN allowed access to Telstra’s infrastructure. We explain the deal and what it means in this story.

Telstra and the Federal Government today announced an $11billion deal that will see the NBN allowed access to Telstra’s infrastructure. We try to decode it with some questions and answers.

Q: Why was the deal necessary?

A: The most expensive thing a communications company can do is dig holes to carry wires or optic fibres to your house. Telstra owns the ducts that carry copper wires to your home and the exchanges where connections are made to link your business or home to the world.

Getting access to ducts and exchanges– even for $11billion – means a quicker, cheaper NBN rollout.

Q: Why are we giving Telstra $11billion when it was publicly-owned a few years ago?

A: Telstra essentially does two things: run a network and offer services on the network. In some parts of the world, phone companies were split so that one owned and operated the network and others then rent network capacity and deliver services. This created a level playing field that was generally held to improve competition because building and operating networks has a very high barrier to entry. Forcing a network operator to sell capacity to anyone encourages competition by removing those barriers so that more companies can offer phone services.

That argument was sometimes borne out in Australia where despite Telstra, being compelled to offer competitors access to its network, often did so grudgingly. In one celebrated case Telstra even charged consumers – you and me – less than it charged its wholesale customers like Optus.

When Telstra was privatised, the decision was made not to split the company along those lines. So we’re basically buying back a part of Telstra that some thought should have been a separate company anyway, in order to get access to infrastructure needed to build a network.

Q: Why build a new network and pay $11billion? Couldn’t wireless do the job for less without digging any holes?

A: Australia’s current phone networks use copper wire and there’s only so much you can deliver over copper: no-one thinks broadband can get significantly faster on copper.

Wireless technology is getting better every day and Telstra proudly and rightly points out that its NextG network is capable of speeds up to 42 megabits per second. The technology powering that network will speed up, but few are willing to predict it will ever catch up to the speed achievable with fibre optics, which can already achieve 10 gigabits per second. If Australia wants future-proof communications infrastructure that doesn’t need to be rebuilt, wireless isn’t the best way to do it.

Wireless also shares bandwidth between users. So while carriers like Telstra can say that their network operates at 42Mbps, if there are ten people connected to a wireless base station they’ll each share a portion of that. Every optic fibre connection gets the same speed.

Q: But why do we need such fast connections?

A: Nobody knows, but that’s not a bad thing: think back to your first internet connection, which was probably on a dialup modem. Would you prepared to relive that experience? The premise of the NBN is that as technology evolves, we’ll find ways to use more and more bandwidth.

Some people use bridges as an analogy for this stuff: when the Sydney Harbour Bridge was built, it was higher than any known ship’s mast and so wide that the traffic of the day hardly ever filled its many lanes. Today it’s crammed.

The nice thing about optic fibre is that it can get faster very easily. Imagine if a road’s capacity could be improved by a factor of ten just by installing new traffic lights: that’s what optic fibre offers.

Q: Will I have to move my phones to NBN?

A: No. NBNCo will be a wholesale operator. It will rent capacity to companies like Telstra, Optus and iiNet, who will concoct their own bundles and offer them to your business. You will almost certainly need to get a new modem to connect to the NBN when it reaches your home, but you should be able to keep your number.

Q: So why does this deal matter?

A: This deal means that NBNCo can start to build its network. So far, NBNCo has only worked on small sites. Now it can really get moving.

Q: Can anything stop the NBN now?

A: Telstra shareholders need to sign off on the deal. And if NBNCo doesn't make enough connections it could be possible for a future government to scale back its plans. But for now it looks like we're full-steam ahead for the NBN.

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