I will write up a number of summary posts for each of these submissions, however in the meantime they can be downloaded using the following links:

• Submission to NBN Product Overview Fibre Access Services Aug-2010
• Submission to NBN Product Tech Spec Fibre Access Services Aug-2010
• Submission to ACCC-NBN PoI Discussion Paper Nov-2010

That’s a fair bit of reading (I know because it was a fair bit of writing too).

Coming up next – a review of NBN Co’s Wholesale Broadband Agreement proposals.

Many of the comments and applications listed so far are pretty good, however I’ve got a few observations to add. As already noted above, the NBN delivers two fundamentals: The first is ubiquitous access, which is also intended to be affordable (unlike mobile data services). The second of course is bandwidth, lots of bandwidth (here though, you get what you pay for).

Also, it’s important to distinguish between mass market services (like communication and entertainment) and the bespoke opportunities (like data transfers between hospitals/broadcasters etc), I’ll focus on the mass market opportunities as the NBN is fundamentally for households.

The affordable ubiquity aspect of the NBN will support:

• The Internet of Things: The connectivity of a myriad of devices that will want to send and receive (albeit it small) continuous streams of data to simplify (arguable) our lifestyles. These are the smart appliances, the smart houses, the smart organisers, the smart messaging systems, security systems etc. They want cheap, always-on data.
• Telephony: Yep, that plain old telephony service, also called the USO in Australia, will be delivered using the NBN. I’ll argue that a basic Internet service should also be considered as part of the USO. I’ll also argue that voice telephony in the future really should be a free hitchhiker on the data network (it’s that small in comparison).
• Backups/Restore: I completely agree with this opportunity, and in fact I don’t think enough people have lost a big enough data store yet to realise just how much they need this. The reality though, is that the amount of data we generate per day that we need to preserve, is relatively small (ie. measured in megabytes, not gigabytes per day currently), yet it will grow.
• Internet/Information: Having access to the typical Interwebs as we know today, with decent speeds and decent traffic allowances (bandwidth caps) should be available to all Australian demographics, regardless of income levels. Some aspects of remote learning can be addressed here but not the video ones.
• Remote Working (teleworking): As we focus less on industrial processes and more on informational processes, then the opportunities for remote working become increasingly viable. Again, this is with the proviso that only some aspects of remote working can be supported. Future remote working is likely to require significant bandwidth and connectivity.

The greatly increased bandwidth aspect of the NBN will support:

• Television: Passive video entertainment bandwidth demand is just going to grow. From the SDTV video broadcasts of today, right through to the 3D UHDTV video on demand and interactive TV of tomorrow. In the US trials and experiments with multi-view (think reality TV or sports with simultaneous broadcasting of all screens instead of cutting between them; although the experiments were soap dramas) and interactive television (will this be significantly different from modern computer gaming) in the future.
• Teleconferencing and Telepresence: This application is a real game-changer as it transitions from the early adopters to mainstream. The applications for teleconferencing and telepresence range from work related, through entertainment, to socialisation and all the way through to health and well-being. The cost and efficiency savings in this area alone will be significant if a NBN Cost/Benefits Analysis is ever done.
• Virtual presence: I separate virtual presence from telepresence although they are related. This is a huge driver for bandwidth and the commercial opportunities are stratospheric. As the costs and inconvenience of travel increase (we may have forgotten about it, but global warming and sustainability hasn’t forgotten about us) then opportunities to offer the following also increase:
  • Virtual Tourism: The ability to visit another part of the world from the comfort of your own home, cost effectively. You could take tours (either group or individual) through historic areas or visit natural wonders. This can be either simulated or even done for real. Imagine joining a live and guided tours of the Great Pyramids in Egypt, The Louvre in France, a River trip down the Amazon or just a walk through a Himalayan village.
  • Virtual Socialising: The ability to organise a virtual get together for either social, entertainment or business use. Rural and regional communities could use this application to organise local event meetings, families which are more geographically dispersed nowadays could use these applications to attend major family events such as weddings remotely.
  • Virtual Concerts: Imagine being able to get front row seats to see the biggest name in entertainment perform live in the comfort of your home, instead of putting up with a ticket that places you at almost telescope distance away from the stage and something god-awful has been done with the sound balance.
  • Virtual Experiences: And finally the application that is already happening and continuing to improve every year. All of the online virtual worlds, aspects of distance video education, virtual conferences and multi-user online games fall into this category. As available bandwidth and network performance increases, these will only become more realistic, more useful and more fanciful.

And that’s my 2c worth, hope it helps.

And of course I forgot some, which often happens when you type something up quickly in between other tasks.

• A key one I forgot was remote security monitoring, in particular remote video monitoring.
• Another one is Cloud Computing, in particular SaaS/IaaS/PaaS (Software/Infrastructure/Platform as a Service). Cloud computing is a rather nebulous term and could almost incorporate anything that is network provided. For this purpose I’m going to focus on cloud computing as being “virtual processing capabilities” and not as concrete services like search which may use cloud computing systems. With this definition in mind, cloud-computing is more driven by business needs, rather than end-user needs and hence would typically not drive a full-on residential access network upgrade. The services operated on virtualised platforms may, but the virtualised platforms themselves do not.

Let me know if I’ve missed any others please.

This post is a more approachable highlight of key points and observations from my review of the KPMG/McKinsey Implementation Study submission to the Senate Select Committee on the National Broadband Network.

Why we want an NBN:
Providing all Australian’s with available, accessible and affordable broadband, regardless of their geographical location or their socio-economic status will not only help to improve the quality of life for all citizens, it will also reduce costs and improve efficiency throughout the whole economy. In order to achieve this outcome though, it is crucial that the NBN successfully eliminate the existing digital divide in Australia such that all citizens have access to high performance broadband services regardless of location and it is crucial that the NBN also successfully eliminate the socio-economic divide such that all citizens, regardless of income, can afford at least a basic broadband service and its associated benefits of access to improved health, informational, entertainment, business and government services.

In economics, that combination of affordability, coverage and performance is achieved through a combination of addressing social welfare (making basic services affordable to all), ensuring increased output efficiency (making premium services available to those who demand and are willing to pay for them) and supporting a free, open and competitive marketplace where providers can actively innovate services for consumers (making services available to everyone at every price-point). Throughout my submission, the focus was on ensuring the NBN actively support innovation, support the evolution of a free, open and competitive marketplace and support affordability through social welfare without compromising the long term viability of the market or itself.

How is innovation affected?
Innovation by definition occurs only when people use products or services in entirely unanticipated and often unexpected ways! Innovation is fostered by increasing choice and flexibility around how product and service components can be acquired and then utilised; if products and services are constrained to say a single bundle or forced tie-in combinations–then innovation around those products and services will also be constrained and even at times completely prevented. The Implementation Study and NBN Co independently have often confronted various challenges by analysing the options and then making a specific decision or choice. In some cases, these choices are made in an exclusive manner–I contend that in many of these cases the more correct approach would be to offer multiple choices into the market and then let natural market dynamics converge upon and determine the optimal balance. This was one of the areas of focus in my submission.

The Implementation Study:
Overall the KPMG/McKinsey NBN Implementation Study reflected a very high quality of analysis and detail in the challenging area of advising the Government on how best to determine and implement various policies required to support the NBN and NBN Co, as well as analysing in depth the potential business case for funding the NBN and achieving an acceptable return on investment. For the most part, the report was pretty good.

However, in several areas, the Implementation Study was clearly unsure of concrete recommendations that it could or should make–mostly due to conflicting information coming from the industry experts the study members interviewed and/or from the lack of formal industry standards to provide guidance. This situation was especially apparent in the areas of QoS (Quality of Service), PoI (Points of Interconnect) and backhaul; all intended to promote a strong, healthy and vibrant competitive marketplace. In these areas, the Implementation Study correctly listed all the desirable outcomes and options available that may impact such outcomes. Yet, it sadly fell short of the mark by failing to then determine the most appropriate mechanism by which to ensure the desired outcomes.

In the case of PoI and backhaul, the Implementation Study exhibited a serious error of judgement, by adopting an equal-outcome based interpretation of their “levelling the playing field” principal instead of a rules based equal-opportunity approach. This was unfortunately, the bad of the report (see section below).

In the areas of the report responsible for recommending an appropriate QoS strategy and wholesale product design, the Implementation Study was sadly very unclear and ended up delegating responsibility to NBN Co to determine the most appropriate course of action. Thus failing to make any real guiding recommendations. Recent events and engagements with NBN Co would seem to indicate that they are not coming to grips with this area either. This was the ugly of the report (see section below).

The Good:
Most of the Implementation Study should actually be considered quite good. Not only did it cover an extremely broad range of topics from fixed fibre through fixed wireless and satellite. Its analysis also covered the technology, procedural, policy and economic aspects of each those, including a fairly detailed geospatial analysis which resulted in a recommendation to increase the 90% FTTH target of coverage to 93% (a target which subsequently has been adopted by NBN Co and supported by their Government shareholder).

Fundamentally the report format was typically along the following lines:

1. Introduce a topic area for analysis and define relevant considerations and terms,
2. Summarise the input data and results of detailed analysis and highlight option impacts,
3. Draw conclusions about the best option and make both formal recommendations and provide informal advice.

Some of these recommendations included ones recommending that NBN Co actively engage with end-user interest groups, industry players and the wider community to ensure the best-aligned delivery model for its wholesale services (pages 122, 129, 423-424, 453 and others) and that such engagements should be conducted in “an open, transparent and consultative approach (which) will reduce the risk of misalignment and assist more rapid adjustment”. Others include recommendations to support innovation by maximising the modularity of the services and products and to support consumer welfare and output efficiency through differentiation of services and prices (pages 104, 122, 142, 143, 146, 199, 253, 256-258, 261, 329, 334, 440, 443, 457, 459, 462).

Finally, the study provided probably the most important piece of advice overall to the Government, that being that the Government must ensure it firmly grab the reins of NBN Co to ensure the NBN horse doesn’t bolt off in any direction and potentially maim itself and the economy in the process.

Pg 500-501: The complexity of the project and its implications across multiple departmental portfolios means that substantial interdepartmental coordination will be required. It will be important to implement a governance model that keeps stakeholder agencies updated on the project’s progress, so that decisions with policy implications can be syndicated and resolved. Each agency will have its own legal and administrative responsibilities and processes, which must be respected, but coordinated in a way that is practical and efficient for NBN Co management.

Similarly, the cross-portfolio implications of the project will mean that multiple Government stakeholders will be inclined to make requests of, or present views to, NBN Co. In the absence of a governance model that manages this process, uncoordinated communications from different Government stakeholders are likely to act as an unnecessary distraction to NBN Co management and leave NBN Co in the awkward position of having to resolve potentially conflicting messages from different parts of Government.

While policy objectives will be communicated to the company by a Statement of Expectations from the Minister, and through other formal exchanges between the company and the Government, these standard mechanisms for interaction are likely to be too formal and unwieldy to provide in themselves the frequent and raid policy guidance that NBN Co will require.

While it is beyond the scope of this report to address issues internal to Government regarding how it might provide ongoing oversight and guidance to NBN Co, the Implementation Study highlights that these challenges need to be considered by Government in designing its internal governance model for the NBN initiative.

The Bad:
From the outset, the Australian Government established the NBN initiative by specifying a number of primary objectives. These objectives, “Coverage, Competition, Customer Care, Cost Effectiveness and Collaboration”, were adopted by both the Implementation Study as well as NBN Co. Now obviously, these objectives are very general, so they have interpreted and broken down into a set of specific guiding principals. Unfortunately, something went amiss during this process and the final results don’t always align with the original intent.

A pertinent example is the “coverage” objective, which has been captured within a “level playing field” principal by both NBN Co and the Implementation Study. Unfortunately the term “level playing field” is more colloquial than technical. And even worse, it has been used in numerous contexts since its inception, each with their own different interpretations ranging from handicaps, subsidies and taxes all the way through to equal opportunities, fair rules and open access policies. It is unfortunate that the term is so heavily and semantically loaded and that it lacks a useful and formal definition, because it admittedly sounds noble and good. And I suspect that because of this, it has been used widely within the Implementation Study, albeit at times with a very inappropriate interpretation.

So how does a simple interpretation possibly affect the health and performance of a competitive market? Well, there have been several recent studies aimed at examining exactly the impact on competitive markets that the application of policies and incentives based on differing interpretations of “levelling the playing field” can have. Many of these studies concluded that if the resulting policies are aimed at ensuring “equal opportunity”, “fair access” and the removal of any “discriminatory practices” then often a “open, fair, healthy and competitive marketplace” evolves. Thus delivering the benefits of increased consumer welfare and increased output efficiency. However, if the resulting policies are aimed at “leveling the outcomes”, by “flattening prices”, either removing or masking the ability for market players to differentiate from one another and/or to leverage strategic advantage, then the end result is actually a loss of healthy competition (see references below). Thus failing to deliver increased output efficiency and improved social welfare. This is the interpretation currently adopted by NBN Co and the Implementation Study.

This highlights just how dangerous it can be to apply the loose concept of “levelling a playing field” without fully understanding the implications such actions or decisions based on particular interpretations may have on the evolution of a truly competitive market.

References:

“Equal rules or equal opportunities? Demystifying level playing field”, Marja Appelman, Joeri Gorter, Mark Lijesen, Sandar Onderstal and Richard Venniker, CPB Document, No 34, October 2003.

“The myth of the level playing field: Knowledge, affect & repetition in public debate”, Jeremy N. Sheff, St. Johns University, 2009.

“The myth of the level playing field”, Sam Bostaph, The Future of Freedom Foundation, 2005.

“Economic effects of ‘leveling the playing field’ in international trade”, Alan V. Deardorff, The Journal of International Trade & Economic Development, Vol 19, Issue 1, March 2010 pp9–32.

To fix this, the focus of any policy actions must really be towards ensuring an “open, fair, healthy and competitive marketplace” rather than on the colloquial “ensuring a level playing field” interpretation of removing opportunities for players to compete and differentiate. There are occasions within the document where this term has been misapplied and caused incorrect conclusions to be drawn and hence certain recommendations (Recommendations 50, 51 and 52.3 specifically) are flawed and should be rejected in preference of mechanisms which re-establish a fair and competitive market environment.

Finally, one other area that I consider to constitute bad advice is the material on pages 254-255, which seems to justify the concept of raising prices for telecommunications services to increase revenue and margins as opposed to the historical constant of prices reducing and services improving/increasing over time. It would be very concerning to see NBN Co and/or the Government pursuing this course of action.

The Ugly:
Sadly, there were quite a few areas where the Implementation Study either provided conflicting recommendations or was not confident enough to draw any conclusions and thus deferred the choice for a path of action to NBN Co. Nowhere was this more apparent than in the areas of QoS, Price Differentiation and the aforementioned forced backhaul bundling. It’s difficult to tell exactly how or why KPMG/McKinsey became confused regarding mechanisms for implementing and addressing QoS to support price differentiation in a Layer-2 Ethernet FTTH based network, however clearly they formed conclusions (for instance page 201) that mechanisms similar to IntServ (Integrated Services, typically based on RSVP or similar and which form the basis of QoS support within HFC DOCSIS networks and the LTE Mobile networks) were not available to support FTTH networks (this is true) and that mechanisms such as MPLS and/or 802.1p are not capable of supporting the requirements (this is false).

This confusion over the capability of technology to support business pricing flexibility led to significant indecisiveness within the report. For instance, the report often provides a fantastic overview and justification for why price differentiation and QoS differentiation is highly desirable (pages 149, 199, 201, 202, 258, 329, 431, 440, 459, 462) but then completely fails to form any concrete recommendations that actually deliver the desirable outcomes–and in some cases they even leave the decision for NBN Co to figure out (recommendations 39, 40, 42, 47). This aspect of the report was really ugly because the reality is that there is already published literature that addresses exactly these concerns for exactly these type of natural monopoly, next generation and converged type networks (reference) and provides guidance on how to do it. And the real ugly of this situation, is that it would appear the NBN Co, who as mentioned have been assigned the responsibility by KPMG/McKinsey to determine a solution, are in no better a position of understanding how to do this themselves. I did offer to consult to NBN Co, however as noted in this post, one of NBN Co’s architects kindly informed me that they “have it all under control” and “do not wish to engage my assistance at this time”. C’est la vie.

Everything Else:
In closing, there were a few other miscellaneous areas of discussion and recommendation within my review. A quick summary of those includes:

• A proposal to extend recommendation 1, “That NBN Co only enter markets where there is insufficient infrastructure …” to establish a set of standards such that private enterprise can privately fund and construct their own (NBN Co compatible and equivalent) fibre access networks without compromising the National Broadband Network initiative.
• A proposal to extend recommendation 4, to allow NBN Co to prioritise construction on a commercial basis for premise as well as non-premise connections (i.e. allow councils to semi-fund their own FTTH in order to accelerate the availability).
• A proposal to extend recommendation 6, to have NBN Co prioritise its rollout in the areas which are currently not served or under-served for broadband (services availability unable to deliver a target 12Mbps minimum capacity).
• Commentary and proposals regarding the future support of a Universal Service Obligation (USO) for recommendations 13 and 30.
• Commentary and proposals regarding the potential support of a future Layer-3 VPRN access service, recommendations 32 and 63.

And that was pretty much it. Till next time…

Amongst these is the fact that I have no intention of being an unattributed charity consultant for NBN Co (most commercial businesses choose to pay for expertise, the people I met clearly indicated they expected to consume it for free). Whilst I believe that it is important for Australia’s future prosperity that the NBN initiative is executed as best as possible, there are several approaches that can achieve or approximate this outcome.

With specific regard to NBN Co, my stance now will be to wait for material to be published, then I will provide a public critique of that material as/if required. Given they are paying for some of the best minds in Australia and have industry clambering to support them, then of course they will continue to get everything right the first time and I’ll have a very easy job to do, “in theory”. However “in practice”, current experience so far tells me otherwise. If I sound a little miffed, it’s because I am.

Aside: It really is very difficult to design the future when you best understand the present/past and then you’re pressured to commit a decision. Vision cannot come from wisdom exclusively. More importantly, disruptive vision mostly happens when you intuitively know that something untried will succeed, despite everyone’s experience and history warning you to the contrary. Australia needs a disruptive vision for the NBN in order to effect an innovative, competitive and open marketplace; otherwise we risk recreating the marketplace we have now, just with different names on the players.

Almost the entire hour and a half available was spent addressing the concerns I had raised regarding their planned PoI model and how it could damage competition and harm local communities. Regular readers will be familiar with these concerns, as I’ve raised them before in my initial feedback to their industry engagement and also in my feedback to their summary feedback. For those of you who are not, a quick summary of what I briefed Matthew and Jamie on is:

Both NBN Co and the KPMG/McKinsey Implementation Study have made the poor assumption that the Point of Interconnect (PoI) model must be implemented as a mutually exclusive one, especially for regional and rural areas. This means that areas that have no “contestable backhaul” will not permit local interconnect. Their justification for this position is based on an operating principle they defined, “leveling the playing field” which was derived from the Australian Government’s own “improved competition” objective.

What is meant by a “level playing field”?

The term “level playing field” is more colloquial than technical. However, what’s worse is it has been used in numerous contexts since its inception, each with their own different interpretations ranging from handicaps, subsidies and taxes all the way through to equal opportunities, fair rules and open access policies. It is unfortunate that the term lacks a formal definition and is so heavily and semantically loaded; because it admittedly sounds noble and good. And I suspect that it is because of this, that it has been used widely when discussing the NBN, albeit at times with a very inappropriate interpretation.

So how does a simple interpretation possibly affect the health and performance of a competitive market? Well, there have been several recent studies aimed at examining exactly the impact on competitive markets that the application of policies and incentives based on differing interpretations of “levelling the playing field” can have. Many of these studies concluded that if the resulting policies are aimed at ensuring “equal opportunity”, “fair access” and the removal of any “discriminatory practices” then often a “open, fair, healthy and competitive marketplace” evolves. Thus delivering the benefits of increased consumer welfare and increased output efficiency. However, if the resulting policies are aimed at “leveling the outcomes”, by “flattening prices”, either removing or masking the ability for market players to differentiate from one another and/or to leverage strategic advantage, then the end result is actually a loss of healthy competition (see references below). Thus failing to deliver increased output efficiency and improved social welfare. This is the interpretation currently adopted by NBN Co and the Implementation Study and this highlights just how dangerous it can be to apply the loose concept of “levelling a playing field” without fully understanding the implications such actions or decisions based on particular interpretations may have on the evolution of a truly competitive market.
To support my argument I referred to the following sources:

“Equal rules or equal opportunities? Demystifying level playing field”, Marja Appelman, Joeri Gorter, Mark Lijesen, Sandar Onderstal and Richard Venniker, CPB Document, No 34, October 2003.

“The myth of the level playing field: Knowledge, affect & repetition in public debate”, Jeremy N. Sheff, St. Johns University, 2009.

“The myth of the level playing field”, Sam Bostaph, The Future of Freedom Foundation, 2005.

“Economic effects of ‘leveling the playing field’ in international trade”, Alan V. Deardorff, The Journal of International Trade & Economic Development, Vol 19, Issue 1, March 2010 pp9–32.

Now, to fix this, you simply make the focus of any policy actions towards ensuring an “open, fair, healthy and competitive marketplace” rather than on colloquial interpretations which aim to remove opportunities for players to compete and differentiate.

After this, I went on to discuss my preferred alternative to their mandated approach, which is both simpler and better. That being; to offer both PoIs concurrently. This option is further enhanced if you also leverage my recommendations for addressing the backhaul monopoly situation as well. I argued that such choices are vitally important to support innovation through a healthy and competitive marketplace, which really is the only type of market that we know works.

How do you promote innovation”?

Innovation is fostered by enabling choice and control. Because of this, NBN Co should never take any unnecessary actions to exclude or prejudice other market players. Rather, they need to ensure that they allow the market to have choices and control over those choices. Then each player can build their business model around various (hopefully innovative) choices that they can make when acquiring customer connectivity. I explained that if you restrict choice and flexibility, then of course you restrict innovation and hence competition outcomes. I also provided them with evidence that backed up this position, such as:

Jeffry Phillips, VP OVO discussing Andy Cohen’s book “Follow the other
Hand”, note that “Evaluating a new product or service based on the choice
it offers and control it provides helps improve the success of a new idea.
These factors reduce the risk of adopting the innovation by offering more
choice or simplifying choice, and by offering greater control over the solution.”

Scott D. Anthony, Erik A. Roth & Clayton M. Christensen “The Policymaker’s Dilemma: The Impact of Government Intervention on Innovation in the Telecommunications Industry”, 2002, define one of their key and basic assumptions as “Truly free and fair competitive markets are the best mechanism to encourage and facilitate the process of innovation. These markets provide innovators with the least inhibited access to necessary resources (e.g., capital, raw materials and talent) and the most potential to reach target customers. Additionally, we believe that market incentives for innovators to pursue new growth opportunities are strongest in a competitive market. In fact, we believe the likelihood of disruption, the most dramatic form of innovation, increases substantially within competitive markets.”

Alan Fels, ACCC contribution to OECD “ABUSE OF DOMINANCE AND MONOPOLISATION” (OCDE/GD(96)131) notes a number of mechanisms used in Australia to identify anti-competitive and hence anti-innovative behaviour including testing “whether the conduct adversely affects consumers of the goods or services in terms of price, quality, availability, choice or convenience and whether it has impaired competition in an unnecessarily restrictive way”.

I explained that the position taken by NBN Co to restrict PoI locations to a single fixed location, was unnecessarily damaging. There is no real commercial or technical justification for limiting the choice of PoI in this manner. I emphasised that offering product modularity and choice benefits natural market dynamics, whilst having marginal impact on systems complexity and minor impact on node complexity (where the benefits gained by NBN Co in deploying a simplified cabinet configuration that avoids interconnect is not counter-balanced by the potential damage it causes to the general marketplace).

And in closing I recommended that NBN Co change to offer a regulated, uniformally priced PoI service, completely uncoupled, at every Fibre Access Node (FAN) via a co-located Ethernet Aggregation Switch (EAS). In addition, if the primary FAN PoI does not have “contestable backhaul” (meaning 3 or more independent backhaul providers), then NBN Co should additionally be required to offer a bundled service, which would include a variable backhaul component and would be delivered as a PoI at the geographically nearest Fibre Service Area (FSA) FAN that is considered to have “contestable backhaul”. I noted that such an approach dovetails nicely into both the Access Provider of Last Resort and Connectivity Provider of Last Resort USO requirement (although it still does not address the complete USO, as more is necessary: namely an additional backhaul and a network service component).

Closing off:
At this point we ran out of time. That was ok though, as I had no intention of freely consulting for the much more complex QoS models anyway. Interestingly, Jamie indicated that my arguments were persuasive and that NBN Co would now run off and do some further analysis to see if my arguments really do hold up.

Great I thought, so of course I asked: “how can I engage more directly with NBN Co to help identify and resolve these sorts of issues earlier and address my concerns around their QoS design”?

The reply: “thank you, we value your input and we’ve take your arguments on board, we know you’ve got some good ideas now, so we’ll just keep an eye on your blog and we’ll call you if there’s anything we want clarified”.

My reply: “I would prefer a more direct engagement and involvement, as the current engagement is not very efficient. I wait for you to publish an opinion and then I submit a detailed response…”.

The closing reply: “thank you, but we’ve got everything under control and don’t really require your assistance”!

Later that day I think to myself, “Wow–most businesses consider risk reducing investments as good investments, evidently not this one…”

Chronological (reversed order) dump of twitter-stream (#nbnis):

miscx #nbnis Walkthrough highlights commentary of KPMG McKinsey NBN Implementation Study http://bit.ly/dvpSWn
miscx #nbnis Report is intended to guide govt to manage NBN Co and market through policy. Report is not intended for any other persons or use.
miscx #nbnis Pg54 Coverage objective. 100% broadband coverage, 93% at 100Mbps (ftth) and 7% at 12Mbps minimum rates (wireless and satellite)
miscx #nbnis Coverage recommendation 93% fibre, 7% satellite (rural) with a separate tender for 4% coverage overlap/alternative via fixed wireless
miscx #nbnis Pg56 NBN Co to consider needs of consumers, businesses, public institutions, service providers, employees, suppliers and partners.
miscx #nbnis Pg59 Govt "national wholesale-only, open-access network" turned into "platform for service providers to compete on level play field"?
miscx #nbnis Pg60-61 Access and backhaul are bottlenecks. NBN Co to build only where necessary. No overbuild, no need for end-end nationwide net.
miscx #nbnis Pg61-65 NBN Co recommended to provide 'coverage' independent of 'connections'. Former is reqd deployment, latter is takeup driven
miscx #nbnis Pg66-67 Defining premises and addresses. Explicit inclusion of schools. Excludes things like ATMs, unoccupied monitor stations etc
miscx #nbnis Pg68 12.7 million addresses in G-NAF (geocoded national address file), est .10.7 million premises, growing by 1.3 million over 8yrs
miscx #nbnis Pg71 Recommendation to allow NBN Co to serve non-premises selectively where commercially viable
miscx #nbnis Pg73 Expectation is that competitive layer-3 nationwide providers will establish themselves utilising NBN Co and other assets
miscx #nbnis Pg73 NBN Co to facilitate competition by "leveling the play field", "reducing costs to reach users" and "averaging access prices"
miscx #nbnis http://bit.ly/aR7RCO http://bit.ly/cDSeJz http://bit.ly/c6dpT5 http://bit.ly/b9btuN strongly critique "level playing field" benefits
miscx #nbnis Pg74 Avoid 'swiss cheese' gaps in deployment. When constructing an area, ensure all premises are covered regardless
miscx #nbnis Pg76 OnsNet Netherlands example where community funded fibre rollout themselves. NBN Co should promote/support similar here
miscx #nbnis Pg79 66% of buildings are single premises, 11% 2-5 premises, 12% 5-25 premises and 11% are 25+ high density premises
miscx #nbnis Pg82 NBN Co should be granted 'right of access' powers to multi-dwelling buildings to ensure coverage. FTTP, not FTTB recommended
miscx #nbnis Pg88-97 NBN Co to fibre up and own infrastructure for greenfields (where appropriate). Extensive recommendations.
miscx #nbnis Pg98-100 Process for monitoring and reporting coverage progress by NBN Co
miscx #nbnis Pg101 NBN must ensure bottlenecks are removed, must accommodate innovation and growth, must ensure maximum flexibility
miscx #nbnis Pg102 NBN to secure rights to essential network assets and to encourage market entry by facilitating open access. Level? or fair?
miscx #nbnis Pg102-104 Support for growth in activations, bandwidth demand and provide flexibility for innovation in services
miscx #nbnis Pg105-108 Discussion on allowing use of HFC as an interim only technology towards FTTP. Implications for Telstra/Optus assets
miscx #nbnis Pg109 Encourage early and rapid takeup through uniform (nationwide) and competitive pricing. Focus on uptake not profitability.
miscx #nbnis Pg113 Migration of services considered under both a co-operate and compete model against Telstra copper network
miscx #nbnis Pg114-118 Support for POTS (phone), including lifeline and emergency, lawful intercept and law enforcement services
miscx #nbnis Pg118-120 Assessment of USO, including options to leave with Telstra, reestablish through tender or create 'retailer of last resort'
miscx #nbnis Pg122-123 Estimate 9mil individuals spending $1000 pa, 700k small business $6000 pa, 3k enterprises $1.3m pa & 12k other $160,000 pa
miscx #nbnis I think consumer group should have been broken out into Power Users (vpn+), General Users (3-play) and Basic Users (pots, Internet)
miscx #nbnis Pg129 Recommendation for NBN Co engagement charter to include "commitment for consultation with industry and end-user groups"
miscx #nbnis Pg132 NBN to focus on layer-2 services for fttp and layer-3 for wireless footprint
miscx #nbnis End user revenue has grown by 5%pa, broadband subscribers have grown by 51%pa and fixed-voice services are down by -1%pa (2004-2009)
miscx #nbnis Pg136 Internet activity in Australia, 2004 1.2Gb per user per annum, 2009 11.9Gb per user per annum (+58%pa growth). Still low!
miscx #nbnis Pg136 Marginal cost per Gb for Internet data, ranging from $0.35c on TPG to $1.19 on Telstra
miscx #nbnis Pg137 "Current usage caps for fixed-line broadband packages in Australia are amongst the most restrictive in the world" - I concur
miscx #nbnis Pg139 Example new svcs include 3DTV, interactive TV, HD video conferencing, virtual reality gaming, medical diagnostics etc
miscx #nbnis Pg141 See only 3 svc delivery models. Over-the-top (Internet), Specified-Bitstream (RSP), Wholesale-Bitstream (ASP). Bit limiting!
miscx #nbnis No mention made to multi-QoS tiering, end-to-end QoS services. See that "NBN unlikely to capture" any new revenue. This can be fixed.
miscx #nbnis Pg143 See that NBN service offerings can only be differentiated by layer in stack and geographic extent (point of interconnect)
miscx #nbnis Misses all discussion of bandwidth and other possible performance characteristics in addition to logical layer and physical POI
miscx #nbnis Pg145 See fibre footprint as having a trade-off between enabling greater competition (lower entry barriers) and enabling innovation
miscx #nbnis Why the assumption that a single solution must be found to address all players equally. Other markets do not adopt this approach.
miscx #nbnis Other markets establishing wholesale national broadband providers focus on offering multiple product choices on a best-fit basis.
miscx #nbnis Pg149 QoS mentioned as useful to differentiate svcs but is then ignored on the basis that "layer 2 is still relatively unproven ..."
miscx #nbnis Pg150 Discussion on opportunities to move beyond 100Mbps to 1Gbps
miscx #nbnis Pg152 Recommendations for NBN Co to offer layer-1 for optimal market performance longterm and layer-3 if there is market failure
miscx #nbnis Pg153-165 Video delivery discussion. IPTV (recommended and favoured), RF-overlay (supported if shared) and Internet-OTT (default)
miscx #nbnis Pg160 Supporting IPTV requires layer-3 multicast support and QoS capabilities
miscx #nbnis Pg163 metered data could limit OTT video services, IPTV platforms need a scale of 1m+ users to achieve a $70-100 capex cost per user
miscx #nbnis Pg165 IPTV market in Australia has issues. Few content channels (US have 100+), low penetration (<30%) and high prices (1.8 US avg)
miscx #nbnis Pg165 "Unless the content obstacles change, it is not likely that the NBN will enable another ... Foxtel or Austar to enter the market"
miscx #nbnis Pg166 e-Government services discussed including e-education, e-health, smart infrastructure and online services.
miscx #nbnis Many e-government services could be provided over some layer-3 wholesale provider (natural or govt established)
miscx #nbnis Pg172 "Government should aim to work with NBN Co and service providers to develop .. discounted services" for various institutions
miscx #nbnis Pg177 High level reference network diagrams. NBN Co to provide access network and intervene to provide targeted competitive backhaul
miscx #nbnis Pg182 Guidelines for network architecture. 'Design Passives' to support longterm futures and 'Deploy Actives' to support 100Mbps now
miscx #nbnis Analysis of fibre deployment architectures. Home-run (which is essentially a dedicated fibre per home) vs Shared (PON network)
miscx #nbnis Pg188 "Geospatial modeling indicates a home-run topology covering 50% ... adds about 5% to the overall ... investment"
miscx #nbnis Pg191 They "modeled a mix of 50% home-run (p2p) and 50% shared" and "believe that this mix is achievable". NBN Co concur.
miscx #nbnis Pg192 NBN Co should adopt the most cost effective deployment approach area by area (aerial, trenched, ducted, duct re-use)
miscx #nbnis Pg193 Assessing GPON versus Ethernet P2P. Recommendation is to consider offering a mix. NBN Co plan to offer GPON.
miscx #nbnis Pg195 GPON has much better future performance characteristics via 10GPON (up from 2.4Gbps) and WDMPON (another fourfold gain)
miscx #nbnis Pg196 Looking at services layer. Recommend offering ATA-voice and Layer-2 during build and add dark-fibre unbundling post build
miscx #nbnis Pg197 Service parameters include Point of Interconnect (network side), Point of Termination (user side) and data link specification
miscx #nbnis Pg198-199 Recommendation that entry level product be at least 20Mbps. Indicate that upsell based on speed is not market efficient
miscx #nbnis Pg199 Noted that "Price differentiation is an important mechanism for network businesses to optimise revenues and demand"
miscx #nbnis Think that the only price differentiation opportunity is headline speed or rate! I think a visit to http://bit.ly/9utB1B is in order
miscx #nbnis Pg201 Recommendation to offer pure voice (POTS replacement) service independent of data services to support retiring of copper nw
miscx #nbnis Pg201 Say "NBN Co will have to enable higher levels of performance, through QoS parameters" yet fail to illustrate how. Need help?
miscx #nbnis Pg202 Require NBN Co "to offer wholesale services that support the implementation of carrier grade QoS" so RSPs can offer premium svc
miscx #nbnis Admit that they are unsure as to how to achieve this requirement. Again, I think a read of http://bit.ly/9utB1B would help greatly
miscx #nbnis Pg203 Recommendation that NBN Co engage with Enterprise and Government to understand non-consumer requirements (secure, big links)
miscx #nbnis Pg205/6 70% of deployment costs will be civil works, 13% will be fibre plan, 8% exchanges and 9% will be ONT (shoebox on premise)
miscx #nbnis Pg207/8 Marginal cost curve shows the knee point is approximately at 90% penetration and the rapid diminishing returns point is 93%
miscx #nbnis Pg209 Uniform pricing seen as possible given cost curve, competitive backhaul transit and via leverage of migration incentives
miscx #nbnis Pg209 Risks are to ensure NBN Co business case remains vaiable and to prevent damage from 'cherry picking' competitors
miscx #nbnis Pg214 Maximum aerial deployment is estimated at 72% (based on aerial power), target is estimated at 55% based on assumed bad poles
miscx #nbnis Pg215 "It is not assumed that the NBN Co utilises existing exchanges". NBN Co will build their own. Telstra take note and others too
miscx #nbnis Pg216 Estimated per-user OLT (network side) cost is less than $100, cabinet costs are around $30
miscx #nbnis Pg217/8 Recommendation to try to co-operate with utilities (power) during rollout but notes that such efforts have no precedent
miscx #nbnis Pg219 Recommendation based on international experience and cost to deploy ONT (premise shoebox) internally, not externally!
miscx #nbnis Interesting challenge. If NBN Co can cooperate with utilities to save costs, outdoor unit makes sense, else indoor unit only option
miscx #nbnis Pg220 Estimated cost to connect home is $500. A migration incentive of reduced connection costs ($300) can be used initially
miscx #nbnis Pg222 Claim that "The geospatial modeling is detailed and rigorous"
miscx #nbnis Pg229 Fixed-voice line penetration in Australia is still at 87% (EU is 50-60% in favour of mobile)
miscx #nbnis Pg230 Historically voice has been anchor for fixed line, broadband is now expected to be the anchor. Mobiles, VoIP etc blamed
miscx #nbnis Pg233 Mobile broadband seen as complementary to fixed broadband
miscx #nbnis Pg234 "Australian fixed-line broadband services are slow, expensive and usage constrained when compared with international peers"
miscx #nbnis Pg234 among the OECD our "services are third slowest, prices seventh highest and usage 'caps' are the norm". Only 4 countries 'cap'
miscx #nbnis Pg244 suggests "take-up rates in the range of approx 6-12% of homes passed per annum can be achieved and sustained" (well until 100%)
miscx #nbnis Pg248 "as fibre penetration increases, the economics of Telstra's copper network will deteriorate" forcing a migration regardless
miscx #nbnis Pg253 Create a robust revenue model by "setting initial price levels" and "pragmatically increasing avg prices over time"!!
miscx #nbnis Moore's law often means "faster, better, cheaper". Why is NBN Co going to be "faster, better, more expensive over time"???
miscx #nbnis Pg254 "gradually increasing prices over time" due to "relative value of fibre" growing to increase "NBN revenues" No growth drives $$
miscx #nbnis Pg254 Trajectory achieved by "new or higher priced services" (Yes) "or a price increase on basic services" (No)
miscx #nbnis This is why it so important to understand how to offer and price multiple tiered services (QoS) into the market to drive revenues
miscx #nbnis Pg255 admits that the mechanisms for driving increased revenue opportunities through premium services is not understood at all well
miscx #nbnis Pg256 "Pricing decisions are dynamic and challenging. They are best left to the company (NBN Co) ..." NBN Co also have no answer!
miscx #nbnis Pg257 Provides a good list of opportunities "Price differentiation", "commercial terms and charges", "bundling" (tying), "fixed" rent
miscx #nbnis Plenty of good overview and high level recommendations for managing pricing but no or very little concrete guidance
miscx #nbnis Pg255 "ensure entry level services continue to uphold the NBN requirement for take-up and affordability"
miscx #nbnis Pg257 support NBN Co "price differentiation (except where it is based on geolocation) ... that are consistent with equivalence"
miscx #nbnis Pg257 broad agreement that "price differentiation in telecommunication ... is appropriate to achieve social benefits" and "returns"
miscx #nbnis Pg257 "the alternative ... a single price--would be inefficient" No price to balance returns and take-ups could be found
miscx #nbnis Pg258/259 Is a summary of price differentiation approaches only. For solutions see http://bit.ly/9utB1B http://bit.ly/bu1zyi
miscx #nbnis Pg260 "NBN Co avoid usage-based wholesale pricing for uncontended services in the long term" or at least be world comparable
miscx #nbnis Pg261 "NBN Co ensures general pricing for NBN services is transparent and modular" Bundling and tying should be avoided
miscx #nbnis Halfway point - I'm taking a break, check back later for the rest (Monday) - Michael
miscx #nbnis Part-II: Walkthrough highlights commentary of KPMG McKinsey NBN Implementation Study http://bit.ly/dvpSWn
miscx #nbnis Pg271 91% of Au landmass empty, 0.2% contains 90% of pop, 0.3% contains 91%of pop. 3.7% contains 99% of pop. 9% contains everyone.
miscx #nbnis Pg273 Broadband DSL currently reaches 92% of pop. Telstra 3G wireless broadband reaches 99% of Pop. Optus 2G=98%, 3G <90%.
miscx #nbnis Pg274 4G Wimax or LTE analysed. 12Mbps requires proximity of 1-2kms to transceiver typical (no better than DSL) or 7-14kms max.
miscx #nbnis Pg277 Nextgen ka band satellites offer 10x bandwidth over existing Optus/IPSTAR ku band. 2x55Mbps GEO birds could cover 350k homes.
miscx #nbnis Pg278 Satellite life expectancy is 15years. Pg279 has great comparison graph of fibre vs wireless vs satellite costs/coverage.
miscx #nbnis Pg280-282 Conclude that fibre to 93%, wireless to 97% and satellite to remaining 100% is recommended balance
miscx #nbnis Pg282/3 Approx 400k homes are close to existing copper exchange outside fibre area. Could re-purpose DSL to serve and backhaul
miscx #nbnis Pg285 Estimates of traffic growth/patterns. Video to be 91% of traffic, APAC 42% annualised growth, current user avg 2-5gb pcm
miscx #nbnis Pg292 Satellite Technologies: LEO cannot support BW reqmt, MEO is untested??, GEO is considered as only choice despite 500ms latency
miscx #nbnis Pg293 Recommend two 100Gbps ka band GEO satellite, offset by 2 orbital degrees from each other, load balanced with degraded failover
miscx #nbnis Pg293 Recommends dimensioning satellite to max 12Mbps and average 300-400kbps (up from todays 10kbps for existing services)
miscx #nbnis Pg297 Recommendation that a satellite service be offered as a Layer-3 service, not at layer-2 like the fibre and wireless
miscx #nbnis Pg300/1 Recommendations for govt to increase costs coverage through ABG to drive uptake of nextgen services
miscx #nbnis Pg307 Assessment of 2.3GHz spectrum versus 700MHz (analog TV). 2.3 is available for immediate use, 700 is more cost effective
miscx #nbnis Pg308/9 Recommend backhaul be implemented to address wireless POIs and that interconnect be offered to others on an open fair basis
miscx #nbnis Pg313 Analysis of indoor versus outdoor 12mbps wireless coverage estimates that 80% of those households will require external antenna
miscx #nbnis Pg314 Recommendations for minimum wireless service intended to drive uptake. Offer basic 4Mbps with an upsell option to the 12Mbps
miscx #nbnis Pg315 Study indicates that cost-plus pricing is difficult due to distortion from govt subsidies and other complexities
miscx #nbnis Concludes that retail-minus pricing strategy is preferred for wireless fixed broadband services
miscx #nbnis Pg314 Benchmark pricing for wireless spectrum established by AUSTAR offering to sell 2.3GHz spectrum to OPEL for $65million
miscx #nbnis Pg316 Recommendation to modify existing wireless spectrum conditions to ensure carriers build rural and metro and offer at same price
miscx #nbnis Pg317 Discussions with industry indicated that existence of competitive backhaul was a key requirement to drive build outs into rural
miscx #nbnis Pg317 Govt recommended to require NBN Co to build backhaul and offer open connections to existing and new wireless transmitter sites
miscx #nbnis Pg319-320 USA Telstra copper access network provides voice to 99.75%. Remaining 0.25% use radio and some satellite (Iridium)
miscx #nbnis Pg321 HD-Voice for mobiles, spectrum sampled and encoded from 50Hz-7KHz for more natural voice, uses 12.65kbps versus legacy 12.2kbps
miscx #nbnis Pg326 Defines backhaul. International capacity, Intercapital transit and Community reach (getting to the 5000+ community exchanges)
miscx #nbnis Pg326 Existing community backhaul costs are high due to duo/monopoly pricing, build costs and conflicts from vertical integration
miscx #nbnis Pg327 Notes that 20% of service costs can be taken up by backhaul
miscx #nbnis Pg328 Backhaul is a natural monopoly: High upfront sunk costs, cheap upgrade capability and small demand/coverage
miscx #nbnis Pg329 Summary of several issues associated with regulating the prices/access to backhaul transit capacity
miscx #nbnis Says choosing service to regulate is difficult but fails to justify appropriately. For instance dark fibre argument is very weak.
miscx #nbnis Other points valid such as trending towards LRIC regulation across backhaul, one-size-fits-all is bad and risk of gaming is real
miscx #nbnis Pg330 Estimates about 70,000 kms of backhaul required to interconnect all fibre and wireless areas to POIs with 2 or more providers
miscx #nbnis Pg331 Estimated total backhaul construction cost is$3.5billion
miscx #nbnis Validity of "competitive backhaul is assumed to coincide with DSL entry by providers other than the incumbent" in existing exchanges?
miscx #nbnis Pg332 Recommendation for NBN Co to seek guaranteed access to dark fibre assets in preference to overbuilding
miscx #nbnis Pg333 Needs of evolving industry "will require creating a level playing field", "NBN Co will need to carefully choose POI locations"
miscx #nbnis No Government mandate for a "level playing field", this has been an industry creation to allow handicaps for inefficient players
miscx #nbnis "Level playing field" is a figurative invention of corporations. It is an often abused and overloaded 'feel-good' phrase to divert $
miscx #nbnis http://bit.ly/aR7RCO http://bit.ly/cDSeJz http://bit.ly/c6dpT5 http://bit.ly/b9btuN strongly critique "level playing field" benefits
miscx #nbnis http://bit.ly/c2kjnh is a good historic review of the origins of the phrase "level playing field", now relegated to industry jargon
miscx #nbnis Pg334 Recommendations for ongoing evaluation of backhaul competitiveness and POI location
miscx #nbnis Pg334 Recommendation that backhaul service should be modular (not bundled) and end-to-end (aggregate, not per svc)
miscx #nbnis Pg335 This misdirection inevitably leads to implementing a replacement monopoly, placing NBN in breach of the WTO and reducing takeup
miscx #nbnis Pg335 Target backhaul cost component is estimated at 10% of retail service cost for entry level products
miscx #nbnis Pg336 Formal recommendations regarding backhaul and POI. Agree with point 1 and 2, strongly disagree with point 3 - will update later
miscx #nbnis Pg337 "Level playing field" target becomes all-pervasive. Now driving argument for linear pricing (no-economies of scale benefit)
miscx #nbnis Avoiding abusive distortion is to be commended but not at the expense of passing on economies of scale benefits to end-users
miscx #nbnis Pg339 "level playing field" approach now introduces problems preventing future privatisation of backhaul. Complex analysis of options
miscx #nbnis Pg341/2 More analysis of problems caused and also some good recommendations, that can still be offered without the current complexity
miscx #nbnis Pg346 Reports recommendation is to provide fibre to 93%, fixed wireless to the 94-97% and satellite to the 98-100% for $42.8billion
miscx #nbnis Pg350 Study estimates NBN Co to hire 1000 staff for network design, project mgnt, procurement and contract mgnt during rollout phase
miscx #nbnis Pg351 Estimate is conservative. $5B savings if ducts, pits etc shared; assumes increasing costs, no scale benefits, non-optimised
miscx #nbnis Pg356 The fibre access network alone is expected to provide 95% of NBN revenue (93% coverage). Not bad
miscx #nbnis Pg357/8 OPEX for NBN CO is expected to be $1B (35% lease, 65% staff and maintenance). Active components 5-10yrs, passive 40+ yrs
miscx #nbnis Pg359 Worst-case analysis of performance indicates a 3.6% return, best-case upto 8.3%. Low numbers for high risk, but still positive
miscx #nbnis Pg361 Pragmatic recommendations to accommodate model innacuracies. Respond to market by (de)accelerating rollout to match take-up %
miscx #nbnis Pg362-4 Set of policy change recommendations to prevent third parties from preventing NBN Co deployments where impacts are minimal
miscx #nbnis Pg367 "appropriate funding model for NBN Co is one in which the Gov achieves its policy objectives and uses it resources efficiently"
miscx #nbnis Returns rate and risk of NBN Co make it difficult to attract or even justify private sector equity (look for 9-25% returns)
miscx #nbnis Pg370-1 Further recommends avoiding private equity as that would focus NBN on delivering commercial gains not govmnt policy outcomes
miscx #nbnis Pg373 NBN Co could in the middle stages acquire private sector debt which could help to ensure an more robust business case
miscx #nbnis Pg377 NBN Co would likely require more funds that Australia's debt markets could provide. International debt markets may be needed.
miscx #nbnis Pg381 Conditions that apply for NBN Co as a Government Business Entity, note the competitive neutrality means playing by common rules
miscx #nbnis Pg383 Study notes that grants and/or subsidies shouldn't be required!
miscx #nbnis Pg385 Nice graph showing the cycles in Australian equity funding. 2008 was a low (like 2001), next peak expected around 2012.
miscx #nbnis Pg387 wait till NBN Co have "stable business model...proven track record...stable regulatory regime...clear governance structure"
miscx #nbnis Pg389 "Separating NBN Co into Active and Passive companies could make privatisation easier"
miscx #nbnis Pg390 A full IPO of NBN Co post rollout would be an ASX 20 company worth an estiamted $41Billion
miscx #nbnis Pg392 Separation would however have tax considerations (such as stamp duty on transferred assets)
miscx #nbnis Pg393 Recommendation to establish a stapled trust to hold NBN Co assets prior to any asset acquisition to improve attractiveness
miscx #nbnis Pg404-5 Government guarantees would essentially derisk NBN Co but would need to be managed carefully to not be inappropriate for GBEs
miscx #nbnis Pg406-9 Careful management of funding required to ensure policy mandates are met in a commercially responsible manner
miscx #nbnis Pg415 Summary of equivalent risk profile companies to final NBN Co
miscx #nbnis Pg417 Build NBN & transition industry 2009, Prepare for privatisation 2018, Sustain a world class competitive telco industry 2035+
miscx #nbnis Pg419 "NBN Co's open-access, wholesale-only status is not sufficient to preclude development of adverse competition scenarios"
miscx #nbnis "Concentration of ownership in backhaul... can stifle market dynamics... limited investments in infrastructure can stifle innovation"
miscx #nbnis Pg420 "the full extent of the innovation (long-lifespan infrastructures) would unleash has never been accurately predicted"
miscx #nbnis Pg424 "choices today that limit the range or bias the (...) models can distort the natural evolution of a healthy competitive market"
miscx #nbnis Pg425 Overview of market risk areas: Backhaul, interconnect, layer-3 market, content concentration and retail margin erosion.
miscx #nbnis "if Telstra is granted access to connect below NBN Cos POI ... it will gain a cost advantage" which could then be passed to end-users
miscx #nbnis Backhaul can be made more competitive "by permitting NBN Co to provide additional backhaul links". I agree, additional, not replaced
miscx #nbnis Pg426 "NBN Co's intervention in the transit backhaul market is likely to drive further third party investment in the Layer-3 market"
miscx #nbnis Pg427 "It is reasonable to expect...wholesale layer-3 providers will emerge--either as standalone businesses or as wholesale arms..."
miscx #nbnis Pg428-9 Recommendations to carefully monitor emergence of competitive layer-3 wholesale providers or have NBN Co intervene about
miscx #nbnis Pg431 Commodity price war risk can be mitigated by ensuring a "portfolio of layer-2 Ethernet products" are available for innovation
miscx #nbnis It is desirable to allow "scope for premium service providers to differentiate themselves from low-cost operators" of best-effort IP
miscx #nbnis Pg436-8 Various competition model case studies from Portugal, Japan and Singapore
miscx #nbnis Pg439 "The creation of a single national open-access ... access network is economically efficient, as it avoids wasteful duplication"
miscx #nbnis "Competing networks will erode the economics of NBN if allowed to cherry pick the most attractive areas"
miscx #nbnis Pg440 "Flexibility to differentiate pricing by service and user type will be important to achieving take-up and usage on the network"
miscx #nbnis active svcs "allows the company to differentiate pricing between a greater diversity of products to maximise penetration and revenue"
miscx #nbnis Pg441 "the Government must consider how to achieve appropriate dynamic outcomes--innovation" at the active layer http://bit.ly/dBQqa3
miscx #nbnis Pg443 NBN Co "must not be allowed to become the central obstacle to competition in the future"
miscx #nbnis Report indicates we must anticipate risk of NBN Co monopoly expanding its scope, operating inefficiently and/or failing to innovate
miscx #nbnis Pg447-450 International examples provided for South Korea, Malaysia, New Zealand and Sweden
miscx #nbnis Pg453 Mandate "An open, transparent and consultative approach will reduce the risk of misalignment and assist more rapid adjustments"
miscx #nbnis Pg454 recommend "subjecting NBN Co to full public transparency (to) apply valuable discipline to (the) company" and rigour
miscx #nbnis Pg457 No need to explicitly address the scenario of "sophisticated end-users" from establishing their "own service provider entities"
miscx #nbnis Pg457 Recommend against NBN Co providing layer-3 "however, in light of representations from some industry" the ACCC should monitor
miscx #nbnis Pg458 Guidelines to ensure Government restrict NBN Co from acquiring any telecommunications retailers in the future
miscx #nbnis Pg459 "The Government recognises that open access and equivalence are an essential part of fair wholesale dealings"
miscx #nbnis "We therefore believe that equivalence should be implemented principally by means of transparency and common availability"
miscx #nbnis Substantial discussion on equivalence and the need to a loose definition as opposed to an actual "all things absolutely equal"
miscx #nbnis Its a pity all this discussion is then rapidly forgotten by Pg 461
miscx #nbnis Pg461 NBN to establish backhaul wherever the market is considered uncompetitive to provide an alternative (keep everyone honest)
miscx #nbnis but then says equality mandates that "NBN Co should not allow access to its network except at points reached by competitive backhaul"
miscx #nbnis There is much confusion between "absolute equality", "level playing fields" and loss of flexibility and stifling of innovation here
miscx #nbnis Report continues "NBN Co should be prohibited from discriminating between customers"=="like services, like terms, like circumstances"
miscx #nbnis Pg461 Many of the issues regarding determining availability of competitive backhaul are resolved if the exclusive approach is dropped
miscx #nbnis Pg462 Recommendation 50, same as before, agree with (1) and (2), strongly disagree with (3). Will cover at http://miscx.wordpress.com
miscx #nbnis Pg462 All service providers take note, NBN Co POIs will not be located in existing Telstra exchanges. Meaning new fibre runs reqd.
miscx #nbnis Pg462 NBN Co to accommodate for RSPs "seeking access to its layer-2,... transit backhaul,... unbundled physical fibre or wavelengths"
miscx #nbnis "It is important to ensure that NBN Co's service offering and pricing architecture are not prejudiced in favour of a particular model
miscx #nbnis Recommendation is to avoid tying, bundling etc and instead adopt an a-la-carte or modular approach for service components
miscx #nbnis Pg463 "a truly innovative and dynamic retail market will be created only if competition is facilitated within the home" (multi ports)
miscx #nbnis Pg463-7 Analysis of cherry-picking risk, avoid by mandating carrier standards of implementation and open-access equivalence
miscx #nbnis Pg471 Recommendation that the Government ensure that NBN Co can and will unbundle at the passive layer in a competitive manner
miscx #nbnis Pg471-5 Recommendation that NBN Co demonstrate support for physical unbundling and the ACCC regulate the unbundling
miscx #nbnis Pg476-8 Recommendations to ensure healthy privatisation (not another Telecom), including support for structural separation in future
miscx #nbnis Pg479 Explicit recommendation to keep backhaul assets and services in the public hands, potentially a non-issue if POIs are inclusive
miscx #nbnis Pg482-491 Recommendations and analysis of other entities with regard to restrictions on domestic and international ownership levels
miscx #nbnis Pg492 Recommendation for NBN Co to support mobile backhaul transit services unless prohibited by the Government
miscx #nbnis Pg496 The "rapid pace of the planned roll-out of the NBN makes it critical that NBN Co develops a comprehensive corporate plan"
miscx #nbnis The plan "will provide a mechanism for Govt to verify that plans are consistent with Govt's objectives and to identify issues"
miscx #nbnis Pg498-9 Details recommending content and elements that should be in the initial plan
miscx #nbnis Pg500-1 Recommend a governance model that addresses the unique start-up nature of NBN Co and the high pressure to achieve outcomes
miscx #nbnis "NBN Co will seek rapid policy guidance and, if it is not forthcoming, will respond with indecision ... or its best judgement"
miscx #nbnis warns that "timely intervention (may) be compromised, especially given the technical complexity of many of the issues"
miscx #nbnis Govt need ppl "with sufficient depth of expertise..., sufficient confidence in the detail that they can challenge NBN Co's positions"
miscx #nbnis Pgs502+ Guide to moving forward on recommendations through legislation, competition, funding, regulation, instruments and expectation
miscx #nbnis I'm done. Hope this was of some help. I'll be refocusing on various key areas through submissions to my blog, NBN Co and to the DBCDE


Again Phil Dobbie brings his unique style and energy to the podcast format and in process uncovers a few new concerns for our rapidly evolving (or is it devolving, …. maybe just stagnating) telecommunications industry.

Well worth setting another twenty minutes aside to listen to.

NBN Co’s role is to realise the Australian Government’s vision for the development of a next generation national broadband network. To do this successfully, we need to consult widely to ensure our plans for the network meet the current and future needs of our wholesale customers and the wider Australian community.

Interested parties were invited to return submissions back to NBN Co for review by mid February 2010. In the meantime, NBN Co held two open industry briefing sessions, one in Sydney and the other in Melbourne, the latter of which was recorded and published online. In late March 2010, NBN Co released their summary of the collective open industry feedback and published a subset of the responses onto their website. This post is my review and summary of those submissions, or at least the subset that engaged in an open fashion and allowed their submissions to be made available to the public, for open review, against NBN Co’s own summary review.

In true analysis fashion, I’m going to start with just purely descriptive observations and then progressively move into the interpretive and predictive observations. So first the facts.

The 10,000 foot view, who responded (and who hid):

• NBN Co received submissions from just 48 interested parties (including 5 independent submissions).
• Of those submissions, only 25 parties (~50%) (of which only 1 was an independent submission) chose to participate in an open fashion and provide NBN Co with permission to publish their responses.
• The remaining 50% of the parties chose explicitly not to participate in an open fashion. These parties included:
  

  Alcatel-Lucent Australia	Hal Linstrom (Independent)	Ramin Communications Pty Ltd
  Australia Post	Huawei Technologies Australia Pty Ltd	Singtel Optus
  Dmitri Kalintsev (Acting Independent Technical Expert)	iiNet	Sunshine Coast Regional Council
  Dodo Australia Pty Ltd	IPG Photonics Communications Products	Vocus Group
  ECI Telecom	Mark Thomas (Independent)	Vodafone Hutchinson Australia
  EXFO Asia Pacific Pte Ltd	Nextep-NEC Australia Pty Ltd	Zinwell Australia Pty Ltd.
  FibroLAN Ltd	Nicholas Brown (Independent)
  Foxtel	Primus Telecom Australia	FTTH Council Asia-Pacific

A notable exception was the FTTH Council Asia-Pacific, who originally submitted their proposal publicly, however it was later removed by NBN Co “at the request of the FTTH Council after it expressed concern that despite the disclaimers that some of the points were not consensus views, some of its members were being associated with these views. This conveyed an incorrect impression and in the interest of its general membership the document has been withdrawn”.

What about content?
Out of the original 25 publicly accessible responses,

• 5 (20%) were less than 3 pages and contained little content,
• 10 (40%) were of a moderate size and contained summary position content and
• 10 (40%) were of a substantial size (10+ pages) and contained detailed content.

Industry knows not to bite the hand that feeds it:
When NBN Co released their summary response, they proudly announced to the public that everyone is pretty much happy with what they are planning, specifically

noting that key elements of its design and wholesale product offer for the proposed National Broadband Network have received significant industry support.

Recall that NBN Co are the Government granted future monopoly provider of broadband access in Australia, with a plan to invest approximately AUD$43 billion over the next 8 years. They represent the largest infrastructure project ever undertaken in Australia. On that basis, it is not at all surprising to see the vast majority of respondents vying with each other to position themselves as NBN Co friendly and supportive. Either to offset some inherent threat (existing infrastructure providers) or to secure some benefit (as a future direct customer, partner, supplier or some other beneficiary) from NBN Co itself.

In fact, very few of the submissions could reasonably claim to be completely impartial and hence openly objective in their feedback. Amongst these were most probably the 5 independent submissions

• Dmitri Kalintsev,
• Hal Linstrom,
• Mark Thomas,
• Michael S Cox,
• Nicholas Brown

and the various industry group submissions

• APCO Australasia,
• ATUG,
• Broadcast Australia,
• Communications Alliance,
• Free TV Australia,
• FTTH Council Asia-Pacific (Document WITHDRAWN),
• Internet Society of Australia,
• Standards Australia.

How many unbiased submissions?
In summary:

• a grand total of maybe 13 (25%) independent and impartial voices
• of which only 8 (16%) were prepared to go on public record with their feedback and
• of which only 5 (10%) provided substantive and detailed responses.

This feedback process should not have been considered as a democratic voting system with all voices being equal; rather increased attention should have been given to the clearly independent responses. If anything, those 5 responses (ATUG, Broadcast Australia, the FTTH Council Asia Pacific, The Internet Society of Australia and Michael S Cox (independent)) mentioned above should represent the strongest voices of impartial, expert opinion. Was this the case though? Is it clear from their report, that everyones voice was really heard and listened to, especially if they were being constructively critical? Well, let’s take a look and see.

The ground level view, summaries of each public respondents feedback:
For each party that submitted a publicly open response, I’ll provide a link to that response, an overview of the basic position they adopted within their response and any pertinent details that I believe are worth highlighting. Remember, these are merely my summaries of my interpretation of their responses. Nothing more, nothing less. If you wish to verify the facts, then please check their published responses.

AAPT: submitted an 8 page response, fundamentally representing their commercial interests in becoming a future RSP customer of NBN Co to provide their own retail and wholesale aggregation services. AAPT supported NBN Co’s decision to focus on layer-2 product wholesale. AAPT supported in concept NBN Co’s approach to implementing POIs but noted “how critically important the location of the PoIs to the industry” is, further noting “that POIs should at least in the first instance be located at or near existing local access switches and other POIs for ULLS and LSS products”. AAPT closed with the comment that “This issue is too important to get wrong and the best way to avoid making mistakes is to have an open and transparent consideration of the appropriate location for the POIs”, interestingly this aligns very well with Telstra’s own response regarding POI locations and numbers (see below).

APCO Australasia: submitted a 2 page response, fundamentally representing public interests (for Public-Safety Communications). APCO noted that broadband services “should be declared as ‘critical infrastructure’ in order to provide ‘mission critical services’”. APCO want to work “with NBN Co to develop the future role of broadband communications in Australia’s public safety communications”.

ATUG: submitted a comprehensive 23 page response, fundamentally representing public interests (business telecommunication service users). Fundamentally ATUG see the process of NBN as the culmination of more than a decade of Government lobbying for improved competition in the Australian telecommunications sector and the failure of policy and regulation to establish appropriate competition to date. Their focus was primarily on improving the outcomes for the end-users and in particular the business end-users. ATUG noted that “it is important that NBN Consultations include business end-users directly and Service Innovators who might not be existing telco industry members. Too much telco industry discussion focuses on innovation being driven from network infrastructure owners and operators”! Overall, ATUG were supportive of the objectives adopted by NBN Co which are mostly focused on desirable end-user and market outcomes.

Amongst some of the more interesting points raised by ATUG in their response were:

• “ATUG wants to see the development of an effective Wholesale market for Layer 3 service providers — this may require Government intervention through NBN, policy or regulation”,
• “ATUG expects to see high levels of transparency in regard to NBN wholesale pricing … (and) is not convinced by arguments for price differentials based on size of customer… Any scale economies captured by NBN Company should be shared by all end users”,
• “ATUG expects the NBN to provide a more robust base for competition in regional areas”,
• And finally, a case where ATUG were misrepresented in one of their response quotes–in particular where NBN Co re-affirmed their plan to exclude offering the LEB product in any FSA where the AEB product was being offered (which by the way affects approximately 1.5 million Australian addresses), NBN Co quoted “ATUG supports this approach to RSP competition”. In actuality, this specific ATUG quote was made directly following original text highlighting that “It is important to note that the LEB and AEB products do not provide a wholesale customer exclusive access to the ONT in the end-user’s premise. NBN Co intends to design its product offerings in a manner that allows end-users to choose multiple RSPs to supply them with retail services”. These two concepts are not the same, one is about multiple RSP delivery at the ONT, the other is about flexibility to choose a backhaul provider at the OLT, hence the NBN Co response quote is misleading in this respect.

The latter half of the ATUG response included an extract from earlier submissions they made regarding the NBN Regulatory Framework. A further interesting point comes out of this, highlighting the misquote mentioned above and reinforcing the desire for maximising choice at the infrastructure level is possible (i.e. for backhaul), namely “Choice: Competition remains a key outcome for ATUG. Where possible, infrastructure competition is preferred”! This strongly hints at permitting backhaul competition rather than declaring a backhaul monopoly.

Brisbane City Council: submitted a 5 page letter response, fundamentally representing the public interests (for their local electorate of Brisbane). Brisbane City Council (BCC) noted that NBN Co should not only “focus on competition and innovation at the retail service provider level” but should also focus on “the ability of end-users to connect directly with other end-users … providing maximum opportunity for end-users to innovate and create new applications and business opportunities across the network”. They further quote from an OECD report in their response noting that “Government should promote network technologies and topologies which are the most flexible, create the most opportunities for competition, offer the highest potential for innovation”.

Controversially, BCC were not supportive of a PON network topology and would rather that NBN Co “rollout a point-to-point fibre network”, arguing that increasing bandwidth requirements and increasing demand for symmetric upstream connectivity in the future were key justifications for avoiding a GPON deployment. They were pretty much alone in this matter. Finally, BCC close their response with a discussion on the need for clarity around backhaul for greenfield developments and in particular who should fund the costs of construction.

Broadcast Australia: submitted a 7 page whitepaper addressing “Terrestrial Broadcasting and TV Content Delivery on the NBN” as their response, representing the general interests of the broadcasters. This was a very interesting read as in short the TV industry in Australia believes that NBN Co should not implement an RF overlay as it would represent an unjustified additional cost. They were unanimously supported by the Free-to-air TV broadcaster in this matter as well. Given that together, they are the industry and they have spoken, I’d say this question of RF overlay, has been decided.

Broadcast Engineering Services: submitted a 2 page response representing their experience as a competitive broadband access service provider (HFC and FTTH (GEPON) based) in greenfield estates. Broadcast Engineering Services (BES) raise a number of questions around decision points for point-to-point versus PON, they generally agree with the layer-2 implementation approach and finally request some clarity around the definition of POIs and POI location in outer-urban greenfield estate developments.

CITT Ltd: submitted a 13 page response which fundamentally presented their concerns and interests in ensuring appropriate training and skills development to meet the extensive demand for workers that NBN Co are going to generate as part of their aggressive 8 year network construction plan. CITT call on NBN Co to support the undertaking of “a feasibility study on the Telecommunications Workforce development and planning”.

Communications Alliance: submitted a single page response congratulating NBN Co on publishing their first consultation paper, congratulating themselves for their NBN Project which has been operating for 10 months and noting that they “look forward to progressing the project’s working groups examining other aspects of the NBN, with a firm expectation that these findings and options will also be reviewed in future consultation papers”. The Communications Alliance (CA) represent the combined interests of Telecommunications operators and their vendors (basically the same aforementioned companies, who submitted responses directly, many of them privately). It is somewhat surprising that these same companies felt so compelled to offer their feedback directly in addition to the supposed “consensus position” being worked on and put forward by the Communications Alliance. Do the Communications Alliance workgroups really represent the agreed position and opinions of their members and if not, then what do they represent?

Free TV Australia: submitted a 2 page letter response which represented the commercial interests of all the Free-to-air (FTA) television broadcasters in Australia. In short, their position supported the Broadcasting Australia position and re-affirmed the desire to avoid an RF overlay implementation by NBN Co.

FTTH Council Asia-Pacific (submission REMOVED): originally submitted a 15 page detailed response, which was subsequently removed by NBN Co from their public response list, citing “The document was removed at the request of the FTTH Council after it expressed concern that despite the disclaimers that some of the points were not consensus views, some of its members were being associated with these views. This conveyed an incorrect impression and in the interest of its general membership the document has been withdrawn”. It’s a pity as this submission contained many interesting and pertinent observations, which I will simply summarise here verbatim, in order to avoid any possible conflict or challenge (please note that other media sources have also summarised these points):

• On NBN Co assumptions, “NBN Co has settled on some assumptions which are dated and will arguably not provide the best outcome”, “While a pro-competitive/innovative stance is maintained in the document, we are concerned that the approach taken will maintain the upstream status quo and not necessarily provide a boost to either competition or innovation” and “Our reading of the document is that numerous assumptions are stated in the explanatory lead-in as fait accompli … with strategies flowing from these …. we are concerned that some of the assumptions are not a result of rigorous research”,
• On the NBN Co Layer-2 service approach, “(believe) it to be an acceptable compromise if the core active network is designed as if NBN Co’s survival depended on competing against other layer-2 providers with substantial competitive tension to drive an efficient design”,
• On the NBN Co LEB/AEB exclusivity approach, “it is not clear how the assumption that the establishment of a single PoI for any given geography ensures simplicity of design and leads to associated cost savings?” and recommend that NBN Co “Look at the concept of multiple PoIs and an NBN cloud”,
• In closing, “sufficient numbers of members had reservations about the extent of reliance on narrow industry interest groups and we would strongly recommend that NBN Co expand its consultation base to even include professional consultants as opposed to organizations made up of members with a fiduciary duty to protect their respective organizations interests. This point proved to be contentious”.

The FTTH Council Asia Pacific also had a fair bit to say on the matter of traditional FTTP deployment architectures (large FSAs concentrating into large FANs where limited POIs are provided) versus next generation micro-OLT approaches (much smaller FSAs based on a micro-OLTs resulting in far more numerous network POIs). This approach possibly deserves the merit of further discussion and analysis as it fits well with the content of Telstra’s submission and solves a fair few other problems as well (such as integrating greenfields and existing FTTP deployments). I’m not convinced that this approach is necessarily the best approach, just that it deserves some discussion.

Somewhat notably, NBN Co did not acknowledge any of FTTH Council Asia Pacific feedback in their summary response. This is unfortunate, as some of their observations are in my opinion, significant.

Fujikura Asia Ltd: submitted a 4 page response fundamentally representing their commercial interests in becoming a future supplier of passive optical components to NBN Co. Interestingly, Fujikura were quite flexible in their response, recommending that NBN Co also remain as flexible as possible in their construction and deployment practices in order to future proof the network against design changes, demand changes and technology changes.

Internet Society of Australia: submitted a 5 page response, fundamentally representing public interests and end-users (Internet end users in particular). The Internet Society of Australia (ISOC-AU) raise a number of important and unique issues in their concise response. Amongst these issues raised were:

• Concern over avoidance of Layer-3. Understandably ISOC-AU are very concerned about IP which operates at Layer-3 and hence see “that the ideal approach is one where NBN Co provides layer 2, aggregated layer 2 and layer 3 services” concurrently, noting that in the absence of offering layer 3 “NBN Co to rapidly determine and make public its OSS specifications in order to facilitate the corresponding development of retail and wholesale systems using flow through provisioning and network monitoring and management”,
• Concern over PoIs and PoI locations “ISOC-AU encourages NBN Co to offer widespread aggregation of its services in addition to the option of installing local equipment” which strongly implies support for a concurrent LEB/AEB offering as well,
• Concerns over lack of symmetry, especially with respect to IP multicast where “ISOC-AU would prefer to see two way multicast services, that is, where end users can stream multicast” up into the network, not just consume,
• Remaining general concerns over security, interception and privacy, as well as performance,
• Finally, ISOC-AU also note that “we would like to encourage NBN Co to engage further with the end user community in order to obtain the best outcomes for the network”.

Somewhat notably again, NBN Co did not acknowledge any of this ISOC-AU feedback in their summary response! This is unfortunate, as their recommendations are significant and have a material impact on decisions already concluded based on the false assumption of overall support.

JDSU: submitted a 9 page response (with a number of additional attached whitepapers) fundamentally representing their commercial interests in becoming a future supplier of strategy, design and Test and Measurement equipment to NBN Co. This submission was primarily technical marketing.

Juniper Networks: submitted a 5 page response (I suspect this was a cut-down version) fundamentally representing their commercial interests in becoming a future supplier of active network equipment to NBN Co. This submission was primarily technical marketing and focused on recommending NBN Co to follow Metro-Ethernet Forum (MEF) standards and the Broadband Forum (BBF) TR-101 report with specific attention being called to the various IGMP and QoS implementation. Juniper specifically “recommend a tiered set of performance characteristics to allow RSPs to acquire wholesale products for Internet services that can be matched, in capability and price, with the varying usage of their subscriber base”, nice call Juniper, glad to see you’re finally on the same page after nearly a decade (don’t know what I’m talking about, have a chat to your NZ team).

Macquarie Telecom: submitted a 4 page response fundamentally representing their commercial interests in becoming a future RSP customer of NBN Co. Macquarie were overall supportive of many of NBN Co draft proposals with a few exceptions. It is these exceptions that are the most interesting as they were conveniently ignored in NBN Co’s summary response. For instance, in the discussion of POI location and POI definitions (the AEB and LEB again), NBN Co quoted Macquarie Telecoms response as “Macquarie understands that the “model” refers to NBN Co’s proposed network design which will aggregate smaller FSAs to a single POI. POIs in turn are to be located on the existence of, or expectation of, competitive backhaul. Macquarie believes that such a model will in principle be conducive to RSP participation in less densely populated locations”, however NBN Co stopped quoting there whilst Macquarie clearly continued immediately with the following proviso:

on the grounds that:
- RSPs will be serviced by a willing wholesale access service provider, i.e. NBN Co; and willing backhaul providers; and
- RSPs should have a choice of backhaul provider ensuring that backhaul pricing will be competitive.

Macquarie, I could not agree with you more! This point is further reinforced with later comments such as “As traffic volumes build, commercial backhaul providers would be encouraged to increase their network capacity and/or expand their networks deeper into FSAs” which very strongly would be dependent on NBN Co opening up multiple concurrent LEB POIs.

Macquarie Telecom also went further in their submission to detail very sensible criteria for evaluating when a POI can be considered sufficiently contested and hence competitive. The table is reproduced here:

Source: Macquarie Analysis

Michael S Cox, Independent: my submission consisted of a 27 page response which included detailed technical and strategic assessments of much of NBN Co’s published paper. The response was deliberately constructed to represent the interests of Australia residential and business users first and foremost, the evolution of a vibrant, competitive and healthy retail service provider market second and the ongoing economic viability of NBN Co as a wholesale entity third. Whilst the response was overall supportive of many of NBN Co’s proposals, objectives and assumptions; there were a few places where it was critical of various approaches being considered or adopted by NBN Co. In all of these areas, the criticisms were backed up with substantial analysis and a provably better alternative was proposed. Disconcertingly, much of this critical input was summarily dismissed with the following text in the response document:

Almost all respondents who did comment were supportive of the concept.

Some of the issues I raised included:

• Regarding layer 2 versus layer 3 services, “It is not important that these services be provided by NBN Co itself, however it is crucial that they be provided by an independent and competitive layer-3 wholesale service provider who preferably do not themselves have a internal conflict of interest through offering similar, competing applications. In order to maximise end-user benefit it will be necessary to ensure such competition evolves in the market”,
• Regarding the proposal to offer AEB exclusive of LEB, “this may be materially detrimental to the overall product objectives of supporting “differentiation and innovation by RSPs–by providing them with an experience as close as possible to owning their own network” and promoting “maximum end-user choice in terms of both services and providers”. The primary case in point here is our local community consisting of both end-users and local application service providers (community health, small business, local council, public library etc). In such areas if only a single POI is supported, in this case via the AEB product offering (with embedded backhaul component), then the local retailers and any RSP aggregator who would wish to function locally will be significantly disadvantaged by being forced to locate service infrastructure non-locally across to the aggregation POI”, closing with “On the basis of the discussion above, it is recommended that NBN Co reconsider offering LEB POI services for every FSA and where “contestable” backhaul does not exist, additionally also offering the AEB POI service to help foster open access and RSP competition”,
• Regarding the QoS specification, on the positive “It is very encouraging to see that NBN Co are considering a tiered QoS capability as this will significantly open up the market opportunities for service and price differentiation/competition” with a proviso warning that “Whilst it appears on the surface to contain all the key elements required for optimal market competition and fairness, the statements form an unclear and partially incomplete picture”.

Amongst some of the other contributions within this submission was a strategic plan for implementing the tiered QoS capabilities, detailed specifications around the performance characteristics, detailed specification of approaches to managing battery backup and a strategic engagement plan for supporting smart metering in return for access to universal power.

Motorola Australia Pty Ltd: submitted a 26 page response, fundamentally representing their commercial interests in becoming a future equipment supplier to NBN Co. For the most part Motorola are supportive of NBN Co’s proposals, noting how their equipment clearly supports the NBN Co requirements. It is noted that Motorola were completely silent on section 6, which discussed the POI locations (“Motorola does not have any comments on this”). Apart from a small diversion around facilitating layer 3 delivery by RSPs, their submission was primarily a product pitch.

NBN Workgroup New England: submitted a 2 page response, fundamentally representing their community interests as a future beneficiary of NBN Co’s construction activities. This response was clean, quick and very constructive, offering NBN Co deployment advice specific to their environment and support during the roll-out, as required.

Nextgen Networks: submitted a 13 page response, fundamentally representing their commercial interests as a future RSP customer of NBN Co and co-operative competitor on backhaul. It is important to note that Nextgen are somewhat unique in the industry as they do not actively participate in end-user retail services. Whilst Nextgen where mostly supportive of the approaches being adopted by NBN Co, they still raised at least one concern that they desired to see addressed, namely:

• Regarding POI location and AEB/LEB definition, “In particular, Nextgen considers the idea of a single POI for an FSA that migrates over time as likely to require significant customer migration activity for all the wholesale carriers purchasing services in a migrated FSA”, noting that “Nextgen would like clarity on how FSA with AEB could be migrated to an FSA with LEB” in the future.

I also highlighted this particular concern, along with several others which were supported by other respondents including Telstra, Macquarie Telecom, FTTH Council Asia Pacific, ATUG, and ISOC-AU. I’m detecting a common theme now, surrounding any challenges or questions made against the definition of the AEB/LEB construct. In their response NBN Co note that

the AEB/LEB construct and proposed product conditions did not generate a significant amount of detailed industry comment. Almost all respondents who did comment were supportive of the concept.

Why am I no longer convinced that this actually was the case? Is it possible that we may need a few extra checks and balances, just to make sure that the right actions are being taken? I know that when someone else is spending my money for me, I want to know that they are spending it in the right places. This is the part of the process that is referred to as “being transparent”.

And this is admittedly, just a little minor thing, something simple and almost obvious. What about the more major and complex issues, such as pricing structures?
Addendum: After much debate and discussion, I’m willing to concede that maybe this point isn’t quite as obvious and simple as I may have originally thought.

Aside: Mickey and Stefan, I truly hope you’ve remembered everything from our discussions, as the devil really is hidden in the details (beware of compromises as they often lead to complete collapse)–and good luck, I fear you are going to need it in your battles.

Ramsden Telecommunications Training: submitted a 3 page response, fundamentally representing their commercial interests as a future supplier of skills training services to support NBN Co’s construction activities. This response was simply a capability statement for Ramsden Telecommunications.

Standards Australia: submitted a 5 page response, fundamentally representing the personal views of their Chair, Mr. John Ward. Mr. Ward apologised for the lack of formal response by the industry group, claiming that this was due to the timing of the response being coincidental with the Australian summer holidays. Mr. Ward however, goes on to make some interesting recommendations and observations, amongst these are:

• A strong recommendation for technology agnostic home network cabling implemented in accordance with strict standards to accommodate current and future bandwidth requirements,
• A strong recommendation to avoid ‘cost minimisation’ and focus more on maximising end users service capability,
• A strong recommendation to allow selective bandwidth purchasing of QoS across any service capability.

Most interestingly though, Mr. Ward closes the final section with

There is a distinct underlying tone throughout the entire document that NBN Co. knows best and is only offering this solution and only requiring endorsement of same–whilst calling for minor/token adjustments/refinements of same!

Very astute observation there Mr. Ward, you may very well have been right.

Symbio Networks: submitted an 8 page response, fundamentally representing their commercial interests in becoming a future equipment and service supplier to RSPs for the provision of voice services over IP. This is an interesting response as Symbio have vested interest in seeing NBN Co not integrate the VoIP ATA (the capability for supporting plain old telephony services) into the ONT (the shoe-box on the customer premise wall). Rather, they desire to see the voice service completely decoupled from the access service in order to ensure ongoing market opportunities for their service. They argue quite strongly for this decoupling but also provide key recommendation if the service is to be integrated. I’m going to keep out of this argument unless someone wants an opinion. In short the Symbio position is a heavily biased one, however they do understand their service and what they are talking about.

Tech Mahindra Ltd: submitted a 46 page tome, fundamentally representing their commercial interests in providing professional services, integration, design and consulting to NBN Co. This is a fairly detailed technical/marketing document which covers vast aspects of NBN Co’s wholesale product engagement and much more beyond, which takes it outside of the scope of the original engagement. Summarising it really requires a separate post, so I’m going to pick out a few observations:

• They recommend that the voice ATA avoid being based on SIP and instead use MeGaCo/H.248 which is unusual,
• They recommend a flexible packaging hierarchy of wholesale products (‘telescopic consumption model’), that would allow RSPs complete flexibility and control of how they purchase/bundle various product attributes which is sensible,
• They recommend that NBN Co consider a number of alternative approaches to coupling backhaul with AEB and that NBN Co engage openly with industry in determining the best model and locations which is sensible,
• They provide guidance and recommendation on processes, systems, OSS and vendor management which is really out of scope.

There’s probably a lot more that I could say, but not really much more value that I can add, beyond the above.

Telstra: submitted a 16 page response, fundamentally representing their commercial interests as a combined competitor, customer and potential provider/partner to NBN Co (I wouldn’t want the problem of having to counter-balance those conflicting interests). Telstra–Australia’s largest and incumbent Telecommunications operator and arguably the primary cause of why NBN Co exist in the first place. Telstra’s submission covered substantial territory, especially considering its size, ranging from areas of agreement, areas of support and areas of disagreement. Where Telstra disagreed with NBN Co, they backup up their position with substantial evidence and logical argument. Amongst many of the comments, observations and issues raised by Telstra, were:

• Telstra disagreed very strongly with the proposed AEB/LEB construct as well as the proposed limited number of POI locations (approx 200 nationally according to NBN Co, Telstra argue that it should be closer to 600-900 and others argue for somewhere around 350 (where ULL DSLAMS are)). They supported their arguments with a range of business impact statements, referred to specific trade obligations as part of our commitments to the WTO and provided statements identifying how such implementations go against the guiding objectives of the Governments NBN plan. Several other responses also concurred with many of these statements to no avail.
• Telstra agreed in principle with all of NBN Co’s stated product objectives, whilst noting that some of NBN Co’s product offerings fail to actually achieve the stated objectives. Several other responses also concurred with these statements to no avail.
• Telstra agreed with NBN Co’s plan to offer services at layer-2, noting that a healthy market for layer-3 aggregation and wholesale already exists within the market. The responses were mixed on this issue.
• Telstra agreed with the proposed Ethernet/GPON network for mass residential services and noted that certain exceptions would justify point-to-point dark fibre solutions.
• Telstra agreed with most of the various technical detail points, indicating in-principle support for the various bandwidth, QoS, battery-backup, SIP ATA and other product elements.
• Telstra did make a recommendation for NBN Co to consider offering an RF overlay service and integrating an RF port into the ONT, despite the fact that the broadcast television industry responses clearly indicated that this was not the desired approach.

In closing, “Telstra encourage(d) NBN Co to consult further with the industry on matters such as those raised above to best achieve its stated outcomes and to maximise the consumer benefits that will be derived from its proposed wholesale offerings”. All-in-all, a very well presented, well constructed and well argued response and most certainly not what I expected.

TITAB Australia: submitted a 14 page response, fundamentally representing the commercial interests as a future supplier of training services to support the NBN Co construction activities, however their response did take into account wider community issues. TITAB indicated on several points of discussion that they believed the issues were impacted by yet-to-be-determined policies, required further consultation with their members or would be better addressed by others in the industry. TITAB indicated that they were participating and supporting both ATUG and the Communications Alliance in their various NBN workgroups.

TransACT: submitted a 3 page response, primarily representing their commercial interests as an impacted party and potential supplier of infrastructure to NBN Co. Briefly, the TransACT response indicated that due to time constraints they were not able to offer a detailed response, however they in principle agreed with the layer-2 delivery model and their guiding product objectives. TransACT closed with the recommendation that “The network needs to be a true open access ubiquitous network that supports the delivery of both existing and next generation services and applications, priced to encourage acceptance and utilisation by service providers with equivalence of access”.

Conclusion:
In their own words,

NBN Co is committed to an open and inclusive consultation process with its future customers to develop the network and products that meet their technical and commercial requirements.

Yet, despite this, many of NBN Co’s ongoing engagements are becoming increasingly selective and closed, increasingly prescriptive in terms of engagement, either invite only and/or subject to non-disclosure. This is contrary to the strong recommendations of almost all the independent bodies to further open up and engage the general public in addition to the vested interest bodies.

NBN Co, the ball is now squarely in your court. This project is far too important and far too large to risk making avoidable mistakes, especially when there is a huge body of untapped industry experts out there both able and willing to help. All you need to do, is to engage them openly and constructively. Maybe together, we can truly achieve the best outcome?

Disclosure Statement: I neither work directly nor indirectly for either Telstra or NBN Co. I am completely impartial in this matter and have been since the industry engagement began. If you wish to contact me for further information, please see my contact page.

Well worth setting twenty minutes aside to listen to.

First, some assumptions:

• We are considering pricing for an incumbent or natural monopoly carrier (not a competitive carrier, as they have their own specific pricing and market segmentation strategies).
• Thus we assume a large, fixed and diverse footprint (as opposed to pure targeted demand driven growth). There is little scope to only build supply infrastructure in direct response to consumer demand.

We will also define four pillars for measuring success across our various models. These four pillars include providing support for social welfare (ensuring services are accessible to everyone in terms of cost), protection of long-term economic sustainability (ensuring sufficient profit margins to support ongoing maintenance and investment), support for premium performance (ensuring services are acceptable for top-end consumers, business) and fostering an open competitive marketplace (ensuring that vibrant, sustained and healthy competition evolves around the incumbent).

Natural usage patterns:
Natural traffic demands have a distinct and reasonably well understood pattern which is repeated over a number of cycles. These include a daily cycle (driven by diurnal cycles), a weekly cycle (which incorporates common rest-days, week-ends) and a yearly cycle (which incorporates various seasonal and societal effects, like public holidays). The diagrams below highlight some of the common characteristics often seen in usage graphs for telecommunications traffic. These sorts of usage patterns crop up in many human endeavours, including for example US residential broadband usage, Japan residential FTTH usage, UK road traffic and even electrical energy demand and supply (flash required). If it was graphed somewhere, I’m sure a similar traffic pattern would emerge from plotting demand for caffè latte’s or cups of tea served over the day, just with different peaks!

The above are healthy examples of natural traffic demands. The graphs below however, are classic examples of congested traffic behaviours. If any system exhibits this sort of flat-lined, or smoothed behaviour, then that system is most likely being artificially constrained by contention occurring somewhere. This contention will impact the efficiency of the system and performance experienced by all users affected (think traffic jams, brown-outs and packet loss/delay). The aim is usually to avoid, as much as reasonable and possible, such contention from occurring; or if it does occur, to ensure that its effects on premium services are minimised (think transit lanes, multi-phase power supply and priority scheduling).

The approaches:
The basic order I’ve adopted for covering the approaches is as follows. First we’ll take a look at the optimal target. However, implementing the optimal target architecture is not really feasible just yet, as the market simply isn’t ready (lacks maturity). Never the less, it is always useful to know where you ultimately want to be, even if you never make it there. Likewise, it is just as important to know where you absolutely do not want to be. Thus we’ll then look at the various solutions that don’t work, in some way or another, as they miss one of our four pillars. Lastly, we’ll look at the solutions that can work; leaving what I consider to be the optimal, workable solution till last. This final solution not only represents the best current practice option, it also forms an excellent stepping stone towards the known optimal solution. Once armed with knowledge about all the options and their implications, then making rational and educated choices becomes fairly straightforward.

The optimal solution:
The optimal solution is to enable true commodity spot-pricing for network bandwidth. Spot pricing is very similar in concept to having a continuous and repeated auction which results in end-users only paying as much for the commodity as the market requires. Spot pricing is directly influenced by dynamic changes in supply and demand. This results in ever changing equilibriums of price, utilisation and availability. Unsurprisingly, there are a number of approaches for implementing and supporting spot-pricing. Some real-life examples include:

• Google Adwords(tm): It has been almost a decade now since Google revolutionised the online advertising business by adopting what is called the “generalized second price” auction mechanism. This mechanism is used to both determine the placement location/frequency of advertising impressions as well as pricing the click-through or capture resulting from an impression. This approach has also been adopted by other major online advertisers such as Yahoo. It implements a real-time bidding war between advertisers, such that each advertisement is billed the spot-price based on dynamic demand and value-perceptions.
• Amazon EC2(tm): Just recently, Amazon announced a new approach for selling excess capacity on their EC2 platform, based on market spot-pricing. This approach also implements a “generalized second price” auction. Users can bid competitively for access to any dynamic spare capacity and are allocated resources based on their respective bids relative to excess available capacity.
• Electrical Supply Market: This industry is in the early stages of possibly adopting a spot-pricing mechanism to wholesale electrical supply. Some markets players such as PJM have already begun to leverage spot-pricing mechanisms.
• Free markets: Finally I’ll mention that many free trade markets (including FOREX, shares, derivatives and commodities), as well as many auction clearing houses (including well known auction sites, which support English or Dutch auction approaches) are all pseudo-examples of a true spot-priced market. The major difference between these spot-priced markets and the others, is that they are trading non-perishable goods (i.e. pricing stuff you can buy now and sell later; or vice-versa, sell now and buy later, aka short-selling). These latter examples also incorporate a complex risk exposure assessment into the value proposition.

A common theme amongst all of these approaches (with the exception of the last one) is a recognition that the resources are time-sensitive (i.e. they must be used at the time of purchase or forfeited), that the suppliers are able to advertise resource availability dynamically and thus the consumers are also able to vary their respective bids for resources just as dynamically. In ideal markets, a continuous equilibrium is maintained such that the market consumers always pay a competitive price for resources and the excess capacity of providers is always efficiently utilised with maximum revenue extraction. This can result in achieving a classic nash-equilibrium, where everyone wins.

One of the major concerns with spot-pricing, is the lack of certainty around price expectations. Seeing as how the prices are dynamically determined by the open market participants, it is difficult to predict what the prices will be in advance. That said, there are tools and models available which do a reasonable job. On the other hand, one of the major benefits of spot-pricing though, is that the price everyone pays, is the minimum price that should have been necessary in order to secure the resource (at that particular time). This is one of the very desirable properties of most auction mechanisms and is exhibited by the generalized second price auction approaches.

There are a few approaches available for implementing spot-pricing for telecommunications data. These include:

• A generalized auction on a per-packet basis. In this approach, every packet would be marked with a maximum-intent-to-pay by the generator of the packet. The network operators could than configure their network to dynamically adjust a parameter the required-minimum-to-pay directly based on the network utilisation (this simulates an English Auction). If the network is operating below threshold capacity, then packets are transported for the minimum price (possibly even for free). As network demand begins to exceed available capacity thresholds, the network dials up the required-minimum-to-pay and then queues, schedules and accounts packets whose maximum-intent-to-pay is at least the current minimum price (at the minimum price). As demand drops, the network can then dial down the required-minimum-to-pay, thus increasing access and utilisation. This can be done in real-time to ensure some target performance threshold is maintained. This can even be done in a tiered-performance environment. Other, alternative approaches to weighting and charging packets could also be applied, some could form a generalized second-price auction, others could simulate a Vickery-Clarke-Groves auction and even others could be experimentally developed–this would be a very rich area for experimentation and research.
• The creation of a spot-priced open market or reserve market. This approach emulates existing wholesale market practices for trading commodities, existing domestic share markets and even includes the traditional PSTN environment where wholesale trading of bulk call-minutes occurs. In this market, producers would make available bandwidth (subject to various constraints such as peak utilisation, time of use etc) and consumers would bid for allocation of bandwidth which upon winning, they could then proceed to use as per stated conditions associated with the resource.

As can be seen, these approaches require systems and capabilities that are not yet available and a maturity of thinking that the telecommunications industry and its customers have not yet reached. Mind you, this would be an ideal experiment to run on Google’s new Fiber-to-Communities platform. In these systems, a base level of packets could always be carried for (effectively) free, and only when contention for bandwidth begins to occur, would consumer packets begin to competitively out-bid each other for access to the remaining bandwidth, until all bandwidth is exhausted and then any packets failing to meet the current market price thresholds would simply be discarded (refused carriage). I would be very interested in experimenting with some real-time user/application policies on such a network.

The solutions that fail:
Ok, so that was the optimal approach, now what about the ones that simply fail to work, in some way or another. The first such approach is flat-rate-pricing. Flat-rate-pricing is very simple and thus, is often popular with end-users. It mostly appears when services are either new, highly competitive or simply not well understood. As services mature and increase in usage, and as competitive forces establish an equilibrium or balance–then usage-based pricing tends to dominate (until the service becomes true legacy). This maturing is happening now, worldwide, with Internet access and data services, both fixed and mobile. There is a real simple reason for this; it’s called the ‘tragedy of the commons‘. In telecommunications, the maximum available bandwidth within a providers aggregation or interconnect network is a limited and finite resource. It always has been and always will be, especially during periods of peak contention/utilisation (often referred to as the ‘busy hour’). Although it is argued that this resource can be increased easily and arbitrarily, doing so always comes at a cost to the provider and that cost must be passed on to subscribers in some way or another, in order to be long-term sustainable. Unfortunately, aggressive competition often sees capacity increases being coupled with corresponding price decreases. This may be a very effective way to enter a market and acquire market share, however as highlighted above, it is not long-term sustainable.

Without going into detailed analysis, it is relatively easy to see why implementing flat-rate-pricing as a strategy across all consumers cannot be made to scale. Let’s assume we have an aggregation trunk, which all users in a common geographical area must share. Also assume that all users are purchasing a competitive, flat-rate service package. Now admittedly, some users will be relatively light in their usage and only a small percentage will be relatively heavy (actually, many networks have shown that sometimes less than 5% of the user population can account for over 90% of all traffic in extreme cases, however it is usually closer to the 80:20 rule). At some point in time, users will be causing aggregate peak bandwidth to approach the available bandwidth, however this is where the tragedy of the commons effect kicks in. Up to this point, the service performance is excellent for all users, it’s just some users are gaining substantially more value out of the system by abusing the resources as much as they can. The light users are in effect subsidising the heavy users and hence they also become incentivised to use the service more. This will inevitably push the aggregate trunk into congestion. Now the carrier has a few choices, each of which will incur their own implications on the future.

This complex relationship between providers, consumers, platforms and pricing versus demand versus performance is all summarised quite succinctly in the diagram below. I do not intend to discuss these relationships in any further detail here, however most should be fairly obvious and the diagram helps those wishing to explore the interactions a little further.

Finally, I should point out that flat-rate pricing is even worse when applied in a wholesale setting, where it breaks down much faster. You see, wholesale access seekers actively work to leverage the resources of the provider to maximise their own profits and revenue. Thus in conclusion, it is clear that simple fixed rate pricing, based on concepts like peak capacity or peak throughout (the traditional all-you-can-eat approaches) just do not work!

So, is there a way to address some of these shortcomings by for instance, introducing bandwidth quotas (threshold caps with rate-limiting or excess charging) or by becoming creative with accounting (on-net versus off-net and peak versus off-peak traffic)? In short, the answer is no. Whilst these approaches, even if applied with very creative, tiered thresholds, actually can work well with end-users, they really do not scale well with aggregate wholesale access seekers. Also, there is a fundamental failing of such systems. They do not distinguish between different applications generating different traffic streams well. They completely fail to recognise the difference between bandwidth consumed and actual utility/value. For instance, not all bandwidth intensive applications represent premium valued services, likewise, some premium value services may actually consume very little bandwidth. Worse, this is true even with traffic from the same source, for instance Youtube, where it fails to recognise that not all video streams represent the same value proposition to the end-user (think individual content versus premium content). Likewise, with voice over IP, not all calls represent the same value proposition to each end-user, all the time. This truth holds for all traffic streams! In short, this is a very blunt sledgehammer approach for what really demands the surgical precision of a scalpel. Unfortunately, surgical precision also isn’t the only answer as our next candidate demonstrates. Despite support for high precision targeting, it too is a general failure when used in pricing data services.

Session based charging usually involves identifying individual sessions and connections between end-users and charging for them based on an assumption of utility value. Whilst I have nothing against session based charging used in appropriate circumstances (such as for video-on-demand, business grade SIP services or online-gaming), I do take great offense at providers attempting to perform deep-packet-inspection (DPI) to then charge me for sessions and services which they are not natively providing (beyond mere packet transport). This practice of using DPI to manage and/or charge for traffic streams, rears its ugly head every now and then. Not only is it inappropriate, it is also fundamentally misguided–as it ultimately leads to an arms race against your own user base (a quick review of the ongoing sagas involving the RIAA and the MPAA illustrates why attacking your own users can be a really bad business plan). Such approaches can only end in tears. In short, if you’re not directly involved in the end-to-end application service, then do not try to charge for it as you really have no idea of the value the end-users may associate with the service. If you try to charge everyone, the service (and end-users) will increasingly attempt to obfuscate themselves to prevent detection–ultimately this leads to an arms race of increasing complexity and one which the service providers will eventually lose. You are served much better by finding mechanisms whereby users who attribute value to certain applications are given strong incentives to identify those applications to you, so that they can be guaranteed high performance.

Another form of session based charging, is that of time charging. Again, in an appropriate context, time charging is perfectly acceptable (such as video-conferencing services, tele-presence services, real-time online gaming etc). However, it can also be used in completely inappropriate manners. For instance, trying to charge network access based on time is a concept that I hope is now well and truly buried in the past. The future is an always-on, always connected, always ready communications service. It always has been, it’s just the bell-heads never really understood the net-heads and vice versa. In short, time charge only for those services that make sense to be time charged.

It should be fairly clear, that regardless of whether or not some form of session based charging are used; there will always be a significant amount of end-user traffic that cannot be easily identified and valued using these mechanisms alone. These approaches are merely tools not solutions. We still need more.

The solutions that work:
So we’ve looked at the solutions that either fail miserably or are incomplete. What we’ll look at now is the simplest approach that typically works today, especially in service provider and wholesale markets. And then I’ll show how this approach can be extended to offer the greatest flexibility for discriminating price and performance. All of these solutions can be combined with many of the feature sets of the previous approaches. The reason why they work is because they directly incur charges proportional to actual resource consumption and this avoids the ‘tragedy of the commons’.

Throughput metering and charging is really an extension or generalization of the download/upload quota mechanism with the exception that it is typically much better received by the wholesale market and vis-à-vis it is not as well received nor understood by the retail end-user market. This approach works by continuously metering (monitoring and recording) usage over a period of time (usually a calendar month). A statistical formula is then applied across the readings to generate a summary usage, which is correspondingly charged. These formulas can be applied to combinations of the upstream and downstream traffic, can be applied as absolutes (charging by gigabyte-blocks-transferred – more common in retail scenarios) or as relative rates (charging by megabits-per-second – more common in wholesale scenarios).

In the retail scenario where absolute quantities of transfer are charged, the following are typical approaches. Usually the consumer is committed to a minimum spend which is established by setting a threshold. Any transfer above the threshold is then usually charged in fixed blocks of excess or, in the case of CAP-plans, the service performance characteristics may be severely reduced (rate-shaped or deprioritised). In the wholesale scenario, similar thresholds exist, however the charging summary approaches can be quite varied and rich. Again, when usage exceeds some pre-determined threshold, either excess charges can be applied or services can be artificially performance constrained in order to prevent unfettered resource consumption. The most common statistical formulas for summarising usage data are illustrated in the figure below.

This figure represents a very typical, uncongested, monthly traffic graph of a combined residential and business retail service provider (RSP). Usually accounting data is captured every 5-15 minutes over the greater period being measured. Illustrated on the graph are the most common approaches for summarising this continuous rate data. Starting at the bottom and working our way to the top, they include: (a) the minimum (or 0th percentile measure) in this case it is equal to 100Mbps; (b) the median (or 50th percentile measure) in this case it is equal to 573Mbps; (c) the average (or true statistical mean) in this case it is equal to 612Mbps; (d) the forgiving peak (or 90th percentile measure) in this case equal to 1073Mbps; (e) the typical peak (or 95th percentile measure) in this case equal to 1129Mbps; and finally (f) the maximum peak (or 100th percentile measure) in this case equal to 1387Mbps. Now, just some background: the 95th percentile measure is probably the most reasonable for all parties, however the mean, median and 90th percentile are all reasonably commonplace. The advantage of using such approaches is that consumers are not heavily incentivised to avoid or constrain their peak rates and hence gain significant performance benefits. Interestingly, some wholesale providers utilise the 100th percentile or maximum approach and as can be seen, such an approach heavily penalises the consumer, often resulting in them artificially constraining and reducing their traffic to lower peaks. This not only impacts their performance but it also affects the statistical Erlang gain benefit to the wholesale service provider. It is extreme and very unforgiving, definitely not industry or world best practice.

The best-practice solution:
Finally we reach the last proposal which is really just a further generalisation and extension of the throughput metering and charging from above. This approach combines all of the best features available from all solutions in an optimal compromise and meets all four of our pillar requirements with flying colours. But it brings with it a very important proviso to make it work.

Tiered services with tiered pricing is the preferred mechanism for balancing all of the desirable features of the above whilst working around many of their shortcomings or limitations. Instead of offering flexibility within just a single dimension of traffic characteristics, the tiered performance approach aims to offer flexibility across a range of clearly differentiated performance characteristics which can then be priced in tiered manner as well. By avoiding being constrained to just a single performance characteristic, an incumbent carrier can offer and maintain a number of distinct services to a more competitive market place. If they do not offer this capability themselves, it is inevitable that a competitive service aggregator will be forced to enter the market to offer the capability. This is not desirable as it can add significant additional costs to the end-user services. This may be best illustrated using a common economic analysis.

The primary purpose of tiered pricing is to capture the market’s consumer surplus, it also includes support for social welfare through increased output (and this is the case with incumbent carriers). In a market with a single clearing price, some customers (usually the ones with low price elasticity) would be willing to pay more than the single market price, whilst others (the social welfare group) are not willing or possibly able to pay the single market price. Market pricing introduces the flexibility necessary to independently target each market segment at an appropriate price threshold. The diagram below illustrates the various effects of being able to tier pricing to various groups. In the single service price case, the addressable market for price (P) is represented by the corresponding demand for services (Q). The revenue opportunity is represented roughly by the area of the square. In the tiered service price case, individual prices P1, P2 and P3 are offered (preferably in a manner that appeals to each market segment) and subsequently demand for services as represented by Q1, Q2 and Q3 respectively, increases. More importantly, not only does the total addressable market increase, output increases and revenues increase. It is entirely possible that under the right set of circumstances and appropriate management, that the entire market will be able to afford some form of service (full social welfare support) without compromising the long-term viability of the producer.

By choosing to leverage base infrastructure capabilities such as differentiated performance, a
carrier can price differentiated services directly into the market. This allows the first level of consumers, the retail service providers and or aggregators to themselves select which entry points they desire and which market segments they are going to differentiate them into. Hence a rich portfolio of aggregators will exist that can leverage the differentiated capabilities and differentiated prices to develop market based value opportunities. This increases the uptake, increases margins, increases total market efficiency and reduces costs to consumers that have high price elasticity. This approach emulates to some degree, the traditional approach adopted by incumbent Telco’s who would normally have value-based price each legacy overlay network individually.

For the record, tiered pricing is very common across multiple industries, as the following list of
examples illustrates:

• Volume based wholesale price discrimination where larger bulk quantity purchases are offered at a reduced per unit price (many wholesalers and component retailers). This could also include peak and off-peak pricing (utilities) etc.
• Premium product differentiation, whereby a similar product is marketed as premium and sold at a higher price (supermarkets and grocery stores). Other examples include the automobile industry (limited edition paint releases) and the airline industry (weekend away conditions, economy, business, first …) etc.
• Segmentation pricing whereby children, students and pensioners are offered reduced prices when compared with working adults (public transport, entertainment etc).
• Other examples include segmentation by gender (venue cover charges), occupation (education, volunteer, police force etc) and geography (local, interstate, international).

Without such tiered pricing strategies, many products and services would not be as affordable as they currently are for many people.

The proviso: There is an important proviso regarding ‘tiered services’ and their implementation. As I’ve covered before in my article “Which Takes Precedence: Your New NGN or Your Current Business Model“, once you decide that it is highly desirable to be able to offer tiered services at tiered prices, it becomes mandatory that you implement your network aggregation, in particular your class of service (CoS) queuing, in a very specific manner. To ensure that the classes are not only relative in priority but actually perform differentially under various network load and utilisation conditions, requires that all traffic from all sources of a common class eventually aggregate to share a common forwarding block (ie. same network path, same interface queue and same egress scheduler). This ensures that all users of a given class commonly share all the network performance characteristics of that class at a given instant in time. This criteria protects the carriers ability to then differentially price such classes, safe in the knowledge that network users will be both unable to reliably arbitrage the system and/or unfairly leverage the network services beyond their purchased QoS performance. It also naturally and almost unavoidably leads to a path of four abstract classes of service, each with in-profile and out-of-profile markings (why you ask–well you’ll need to hassle me for those details, but the reasoning is pretty bullet-proof). Now, due to limitations within both Ethernet and MPLS headers for signaling CoS (especially across interconnect boundaries), it is necessary to constrain the CoS identifiers to utilising 3 bits only, which provides a hard limited capability for describing, at most, 8 differential forwarding characteristics. This is why abstract forwarding behaviours are needed for classification as opposed to individual application or service constructs. The abstract behaviours are best described as:

• Expedited: A CoS suitable for carrying priority, real-time and interactive traffic such as voice, video conferencing services, online gaming
  etc;
• Streaming: a CoS suitable for large scale streaming of video, streaming of audio, reliable bulk and transactional messaging/transfer, network storage etc;
• Economy: a CoS for basic economy access services (non-premium Internet and background services) and lastly;
• Premium: a CoS that sits somewhere in between the aforementioned two best services and the cheapest service which provides a business grade, premium multi-use capability. It does this by trading some burst discard to ensure small queues.

Combined, these classes implement the holy grail of supporting multiple IP NGN grade of service (GoS) offerings. Practically every type of application can be cost justified into these abstract traffic classes based on the desired GoS of the user. And that is the magic observation–that the mapping of applications into a CoS is based on a value-assessment by the user (not the application) for the GoS required. I.e. an assessment of how much the user is willing to pay for their application to receive some sort of guaranteed performance from the network. Each user will have a different threshold of cost justification for the same applications, which is subject to change over both time and context, so there really is no ‘one size fits all’.

Tiered traffic classes also offer one final and probably the biggest advantage overall. Once you have logically tiered your next generation packet network, you are left with the flexibility to change the way you price each class and even each customer without restriction. You can choose to adopt any, or even all, of these approaches that have been described and apply them to any traffic streams, even simultaneously. In other words, this implementation methodology provides you with complete business freedom to market your products any way you want. Now isn’t that the degree of flexibility and capability that every business desires?

Conclusion:
Ok, the end is near. A final point I’d like to make is to highlight that the end-consumer KNOWS precisely what is of value to them and what is not, they KNOW exactly how much they are willing to pay for that value and all they NEED is a mechanism that allows them to efficiently signal that value proposition to BOTH the retail-service provider AND the intermediate carriers. This is the real problem that needs to be addressed, as currently end-users have only limited options for signaling these value propositions, and even then can usually only signal them independently (ie. either to the underlying carrier by choosing a premium access product or to the end-retail-service provider by subscribing to and paying for the service/content being accessed). What we really need, is the right glue to bring these two together (automatically). But that is the topic of a whole other post.

The tiered pricing approach illustrated here provides a fundamental underlying mechanism required to support this rich and automatic signaling. It is not the whole story however.