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NBN Co should NOT open its network to retail customers

9 Sep


It won’t come as a surprise that I follow what’s happening with Australia’s NBN Co with interest. After all, even if I’ve been highly critical of the plan’s implementation and it’s political weaknesses, it still is a national broadband network and as such worth looking into. But some things slip by me, and so it was with no amount of surprise that I read Paul Budde’s post on Linked In this morning entitled NBN Co Should Open Up Its Network to Others. I’ve met Paul and he’s generally been fighting the good fight in Australia on this issue, but I think it’s fair to say that in this instance I could not disagree more with the stance he is taking.

In essence, what Paul argues for is the ability for NBN Co to sell directly to retail customers. This is currently not easily feasible, he says, because NBN Co has 121 points of interconnection nationally and no wholesale product to connect these points of interconnection. It is also not allowed by the regulator ACCC.

To me this entirely undermines the point of structurally separating NBN Co in the first place. In the new regime NBN Co will have no retail contact with any customers, business or otherwise (apart from technical maintenance). They are a pure wholesale player. This is exactly as it should be. Any other regime recreates a publicly owned incumbent, one that has every incentive to act nefariously towards other market players and screw customers. There’s a reason retail monopolies were broken down, and NBN Co was designed in part to address the fact that Telstra post-liberalization was still too much of a retail monopoly.

I have often argued (unlike Paul) that the sin of the original NBN Co design was not that it had too many POIs but that it had too little. In order for competition to be healthy it needs to be able to optimise its costs, and the best way of doing that is to invest to get closer and closer to the customer. This substitutes a CAPEX-intensive model to an OPEX-intensive model and benefits the market. NBNCo is structurally designed to only offer an OPEX-intensive model and I think that’s a core issue.

I don’t have enough context on what’s going on here, and I need to dig deeper, but it seems to me that allowing NBNCo to offer products on the retail market would be detrimental on many levels: it would undermine the structural separation, if not deal a deadly blow to it; it would create distrust in the market between NBNCo and its customers. And ultimately it would require for NBNCo to be more than an infrastructure player. Considering how hard it’s been for the organisation to get to where it is today, I’m not sure that’s even sensible…

 Photo Credits: (CC) Geee Kay

Is Structural Separation in the UK really that risky?

21 Jul


I rarely disagree with the excellent Martyn Warwick, but sometimes there are exceptions. In an article in Telecom TV entitled BT Threatens Decades of Litigation Over Forced Sale of Openreach, Martin concludes that:

An ill-considered and badly executed sale of Openreach with no guarantees as to its future performance by a new owner would be a recipe for disaster with the buyer breaking promises and failing to make the investments necessary to make Broadband Britain a reality outside the major cities. Meanwhile, Virgin Media goes from strength-to-strength.

This misses, in my opinion, two major points that I wanted to reiterate here:

  • first, a sale is definitely not the way to go for structural separation. A spin-off, as implemented by Telecom NZ is the right approach for a number of reasons: first, it means that the shareholder structure only changes if the shareholders themselves want to sell their shares in the new vessel, so it’s not really a story of a single (and potentially evil according to Martin) buyer acquiring the crown jewels.
  • second, a structurally separated entity lives only on wholesale revenues. As a consequence it has every incentive to deploy better infrastructure, especially in a competitive environment where someone like Virgin is doing the same.

As Thomas Langer and myself discovered when we released our report late last year entitled Can Structural Separation via Spin-Offs Help Europe Achieve its Broadband Ambitions, there’s a lot of half-truths and outright lies that have been patiently spun by incumbent lobbyists about Structural Separation. In fact, Martin quotes BT’s CEO Gavin Patterson in his article in a way that is very telling:

“This is a commercial enterprise and if there’s uncertainty we will defend the rights of our shareholders, undoubtedly. It puts that investment very much at risk. At the end of it, and if we’re meant to be looking at the next ten years, what do you want to look back on? Do you want to look back at 10 years of litigation and arguments?”

The threat here is clear: a US style ‘litigate ’til they give up’ approach. But what about the shareholders?

As we demonstrate clearly in our report, there is every chance that a well executed structural separation via spin-off will result in two major achievements: increase value for shareholders and allow Openreach to extract enough cash-flow to envisage long-term infrastructure investment instead of the (at best) mid-term solutions currently put in place with VDSL and its upcoming life support.

The fact that this would be done by an entity with no financial ties to any market player and therefore would put every market player on a level playing field is, in many ways, the cherry on the cake. Indeed, it’s been seen to work very well for New Zealand, and the Czech Republic’s O2 is currently undergoing the same process. This is neither new nor rocket science.

The fact is that, if Gavin Patterson truly works for the shareholders, he should be considering Structural Separation very seriously instead of threatening the UK government.

Image Credit: 3D Judges Gavel (cc) Chris Potter

Is access competition enough to ensure Net Neutrality?

4 Feb


In an opinion piece published recently, The Economist argues that the Net Neutrality problem is really a competition problem. I have argued the same in the past. On paper, the argument makes sense.

If there is no underlying cost reason to selectively throttle internet traffic (and there isn’t) then economic theory suggests that in a competitive environment, at least one of the players will go for the option that’s best for consumers (because he will benefit from it in customer acquisition and loyalty). Theory suggests again that others will follow until no one discriminates.

That’s the theory.

In practice, I’m no longer convinced that’s true. At the very least I think you need something in addition to competition to make it work. Before I discuss that though, here’s the the reason why economic theory (or at least the above application thereof) may be wrong in this case.

Everybody understands now (and the Economist piece is thankfully not rehashing the old cliché of “traffic costs going through the roof”) that service providers who want net discrimination want it because it puts them in a position of arbitration and they believe that that arbitration can be monetized. In other words, it’s an artificial way to generate extra revenues from access at a time when market growth is no longer the main driver as most people buy access products already.

Except it’s not. Any rational way you look at it, the revenue opportunity is at best minute, and most likely offset by complex systems, awkward customer relations and bad reputation. If you don’t believe this, go and purchase Dean Bubley’s recently updated Non-Neutral Mobile Data Monetisation Report.

The worse is that I suspect telcos know this. You cannot push that hard – and invest that much money into lobbying – without having done the math. I am somewhat at a loss as to understand why they’re still pushing for this, but it leads me to believe that there is nothing rational about this. And as a consequence, competition or no competition, they will keep pushing because they’re blinding themselves.

In addition, the restructured European telco market that the incumbents are (also) lobbying for would have a very small number of players present in most markets in varying positions. If there were ever ideal conditions for cartels to emerge, this would be it. I’m convinced therefore that competition would be nowhere near enough.

Now there is an argument to be made for a combination of competition and abundance. If markets are competitive and users have more than enough bandwidth to satisfy their needs, then the (misguided) rationale disappears. There is no arbitration position when bandwidth is abundant because there is no need for arbitration. That may not have been the end goal anyway, but if the rationale goes away, it becomes virtually impossible to argue the need for the arbitration role.

Considering abundance is (slowly but surely) emerging, do I conclude, as The Economist does, that regulation / legislation is a bad idea? Yes and no.

In the US, I think The Economist is flat out wrong. Title II is necessary and it should have been in place from day one. It’s not even regulation in the active sense, it’s just the only regime that applies under US law to ensure the ongoing survival of a service as vital as the Internet has become.

In Europe, I think we could do without a law or regulation. The UK example of the Net Neutrality Pledge shows that there are non binding ways to make the problem if not disappear, at the very least become minor. At the European level though, I fear it’s too late for that. The lobbying of incumbent operators, and the extreme positions they have pushed have been so fierce that the pushback is here, and will most likely be more extreme than anything the incumbent operators (and sadly probably the other operators too) will be comfortable with.

I (and others) have been saying for years that this whole debate has been a waste of breath on the incumbent telco’s part: they have nothing to gain and everything to lose. They pushed for laws that would put them in a position to arbitrate (because they knew they’d never be in that position in a free market), they might end-up with laws that block them from doing even common sense network management on services they offer.

It’s a sad state of affairs, but one entirely of their own doing. I for one won’t be weeping for them.

Photo: Race to the Checkout (cc) David Blackwell

The Digital Single Market is Already Happening

29 Jan

Remember the key item on the incumbent telecom lobbyists’ agenda: a lower regulatory burden and unified rules across Europe so that large players can “consolidate”. Read “buy smaller players”. Behind the rhetoric is a very simple expectation from these large multinational players: less competition.

These last few months, we have seen such consolidation happening all over Europe. In France, Numéricable (leading cable operator) purchased SFR (#2 in mobile and #3 in fixed). In Portugal, Altice who owns Cabovisão (#2 cable player) is buying PT, the incumbent. In the UK, BT (fixed incumbent) is buying EE (#1 mobile player) and Three (#4 mobile player) is buying O2 (#2 mobile player).

It won’t stop there. Which raises an interesting question: why would we need to change the rules if the consolidation is happening anyway?

At the heart of it is a quasi-philosophical consideration around competition. Policy makers remain convinced that competition is not needed for competition’s sake, but because it keeps a market dynamic and healthy. The interview that the new president of ARCEP gave yesterday in Les Echos says nothing else.

The problem is that policy makers have so far refused to look at exactly what it is that needs to compete to make the market healthy. Incumbents want less competition because duplicated investments in infrastructure (what little there is) weigh them down. But do we need competing networks? At the physical layer, it’s pretty evident that we don’t.

Why not reconsider the paradigm for once? The Digital Single Market is happening whether the rules change or not. If we could avoid killing competition on the way, I’m pretty sure that would be a worthy policy goal…

An Example of Spin-Off

2 Dec

In the last few weeks, Thomas Langer and myself have been talking about structural separation via spin-off at length, and interestingly yesterday’s news gave us an illustration of what it might look like. I’ll let Thomas describe this to you in his own words:

Yesterday, one of Europe´s largest utilities, German e.on announced its plans to split into two publicly listed companies via a spin-off. This approach nicely corroborates our views of how fixed access spin offs could add value to the incumbent sector. Admittedly, market dynamics in the energy and communications markets are not comparable. Without going into the details of the motivation for the decision (excess capacity in the power generation market, repercussions of the decision by the German government to wind down nuclear power), a number of details of the proposed transaction highlight some of the aspects we discussed in our „Structural Separation“ study:

1. Even large European companies are considering spin-offs to release value for shareholders. The presentation to analysts mentions strategic, operational as well as financial benefits. These range from the creation of „more focused companies“, less complexity of organisational structures and a „better alignment between rewards and results“. Last , but not least the transaction „provides tow different and compelling investment opportunities.“

2. Interestingly, the spin-off will lead to structural separation between traditional power generation on the one side and green power and services on the other. Clearly this suggests that a shift in technology and a focus on service orientation both played a role.

3. The initial spin-off will take place in 2016, in less than two years. This illustrates that large organisations can execute a reorg. within a short time frame. Skeptics that look at structural separation in communications markets as too complicated should analyse this deal. It´s doable.

4. One slide of the presentation deck is entitled „Safguarding emloyees interests“. This corresponds ideally to our standpoint that a spin off must not be seen as a means for job cuts and larger downsizing. This would risk losing both internal support and consent of labour unions.

Ah yes: The e.on share was up by more than 4% by midday yesterday while the German Dax was slightly down.

So, not a telecoms sector example and not perfectly mappable, but interesting to examine. And remember, the best example out there is New Zealand, and we’ve described it at length in one of our reports entitled Can the New Zealand NGA Model be Replicated?

Diffraction Analysis in Crosstalk

1 Dec


Crosstalk is an Australian podcast on Telecom matters, and as one might expect, the Australian NBN is a frequent topic. Diffraction Analysis’ Benoît Felten is interviewed in the latest podcast, Doesn’t a 3030 Vision Need Fibre? Phil and Benoît discuss Structural Separation in the wake of the publication of our report Can Structural Separation Via Spin-Offs Help Europe Achieve its European Ambitions. Is Australia a good example of Structural Separation? (Spoiler: no) Could a classic Structural Separation model similar to that of New Zealand be implemented in Australia? And how future proof is the current “three networks” NBN plan exactly?

Photo: (CC) David Jenkins

DT didn’t shelf its variable rate plans…

28 Nov


There was an interesting and animated discussion on twitter yesterday about the fact that journalists systematically present network congestion due to Online Service Providers as a given. The discussion led to talk about Deutsche Telekom’s pay what you eat plans announced last year, and their apparent shelving. But Pál Zarandy pointed me to this article which suggests that the plans haven’t been shelved.

Essentially, and even though the wording is all but clear, what this suggests is that consumers will either be able to buy expensive “flat rate” plans, or cheaper variable-rate plans, the ones that DT believes would help them leverage their market power to coerce Online Service Providers into paying for zero-rating their content (as shown in the video I posted yesterday).

Now as Dean Bubley repeatedly stresses, this has exactly zero chance of happening… as long as there is significant competition in the market. Now the bid for further consolidation in-market appears more clearly as a part of this mad plan. I still believe the chances of it actually being implemented are zero, unless a stupid policy maker (EU Parliament who voted a non-binding motion to structurally separate Google, I’m looking at you) actually buys the argument…

The Incumbents’ Net Discrimination Plan Exposed

27 Nov

I was just pointed to this fantastic German video that ‘unveils’ Deutsche Telekom’s plans with internet discrimination. It’s both funny (because it turns every creepy aspect of it into a ‘feature’, like “you will no longer be bothered by these thousands of services you could never figure out“) and scary, because from all I can gather in discussions with Incumbents across Europe and the US, this is exactly what they hope to achieve. Seriously worth watching.

Oh, and since I always insist on the lobbyists working for Big Telecom being exposed, the guys behind this are Internet activists, and you can find them on

The false dichotomy of competition vs. investment

24 Nov


I spent last week in Europe, in between Stockholm, Brussels and Paris and most of the topics I discussed, heard or addressed in public were in one way or another about policy. One thing that struck me is how the false dichotomy of competition vs. investment in the market is alive and well. We know where it comes from: mostly incumbent lobbying, with competitive operators sitting on the fence, not quite sure if they buy it, but not quite sure either whether they should disprove it.

What I found the most astonishing though is that every policy expert I spoke to (except ones clearly aligned with incumbents) or heard talk at the ECTA annual conference was adamantly clear that the dichotomy is false. Here are a few of the quotes I tweeted from the ECTA event :



The quote from Ofcom might be considered surprising when one looks at how the UK Regulator has worked with BT to institute an unseparated infrastructure monopoly there (and competitive operators are finally starting to get their act together in denouncing this) but it’s hard to contest that it’s true.

So here’s the conundrum: all of those who have looked into this market with even a modicum of independence know that the dichotomy is false. This includes regulators and most EU policy makers at the operational levels. Why then does it still pervade actual policy making and press coverage? How come the French government wants to reduce the number of mobile players in the market? How come the Dutch regulator refuses to open up cable networks despite evidence that it’s feasible and done elsewhere (I’ll come back to that one)? How come the first blog post of the incoming commissioner frames exactly that false dichotomy as a solution (see my response to that here) ?

The first and most likely answer is “lobbying”. Incumbent lobbying is massive, loud and targets just the right people. In particular, it targets the press, and the press is always after a “balanced view”, this false intellectual construction that dictates that no matter what the argument on one side is, the argument on the other side is at least equally valid. So it seems that in the higher echelons of regulatory and policy decision making, the ultimate decision makers listen to the press and the lobbyists, but not to their own people. That is sad, and I really feel for the people working in these organizations.

I mean, here we have virtually every independent expert in Europe saying that the single digital market will not be of any use if infrastructure investment is what we are after, and yet every sign and message of the new incoming commission, from Oettinger all the way up to Juncker himself is that we need to allow more consolidation in Europe and less players in each market.

What are we doing wrong? How can we collectively broadcast the message loud and clear that the dichotomy is false? That investment in the telecom sector will not be achieved through consolidation? Is our telecom policy destined to fatten dividends?

I don’t have the answers. At our own little level, we at Diffraction Analysis are pushing what we believe to be the right messages, backed by unbiased research. But we’re really small, and our ability to be heard is extremely limited. Someone last week commended us on our Structural Separation work, and added: “what’s the plan now? How do you put this on the agenda, and how does it play out if you manage to do it?”

The short answer is “I don’t know”. But I would clearly like to start a discussion about this, and I’d welcome any ideas and opinions from those who, like me, believe that some of our issues can be solved by policy, only a policy that is independent from the pervading incumbent’s worldview. Please let me know what you think about how things could be pushed forward in the right direction.


Photo: (cc) Mary Beth Griffo Rigby

Structural Separation Webinar Commentary

20 Nov

Our webinar on Nov. 18th hosted by the FTTH Council Europe was extremely successful, both in terms of attendance and in the level of engagement and quality of questions. The video has been uploaded, and is available here. The report is still available for purchase and goes in a lot more detail on these issues. It also analyses existing successes and failures in Structural Separation which was not touched upon during the webinar.

In the wake of the webinar, we have decided to offer in addition to the report the full Q&A document to anyone purchasing the report. We are also happy to throw in a one-hour person to person presentation / conversation for those who will purchase the report.

Please get in touch if the payment instructions on our webpage are not clear.