The Broadband Divide

Keynote Address
Rural and Regional Telecommunications Summit 2002
Melbourne
29 April 2002

Have you ever wondered why your Internet connection is so slow? If so, you are not the only one, because hundreds of thousands of Australians share the same frustration.

For all of the promise of the Universal Service Obligation (USO), Consumer Service Guarantee (CSG) and competition laws, they have failed to ensure carrier performance has kept pace with the needs, expectations and desires of consumers.  And people are demanding to know why.  This question can be answered at least in part by taking a closer look at Telstra’s research and technology choices and decisions.

And so, it is about time that we see through the myths of the world wide wait and expose some of the realities of the Telstra Consumer Access Network (CAN).  Internet users around the country are sick of being told their slow speeds are their problem: or their ISP’s; or their modem.  Well now home internet users are fighting back.  They are taking on what is emerging as a broadband divide.

By drawing Telstra’s actual network technology into the public debate, it has been possible to gain a far stronger insight into why there is such a poor, and declining level of service across so much of their network.

This insight also confirms that Australians have and will be deprived of achieving broadband with any degree of universality if Telstra continues to dominate the Australian telecommunications market, particularly with respect to the CAN.

This realisation in turn begs for the spotlight to be turned on Telstra’s corporate decision making, in particular their research and investment priorities over the last five or six years or so.

It also begs for the spotlight to be focussed on the symbiotic relationship Telstra has with the Coalition Government

Together in a Faustian pact that has placed the profitability of Telstra at the forefront of all federal government public policy considerations, the Coalition and Telstra have ensured a consumer access network that belongs in the last century to the detriment of Australia’s growth and potential.

Where is the vision that aims to maximise Australia’s economic and social potential through the best communications infrastructure and services in the world?  There is no sign of it here.  All our national strengths and attributes that will help us become a knowledge society, like being early adopters, highly educated and multicultural, are being squandered in the face of such policy ignorance. 

This morning I would like to traverse all of these issues.  To start with it is useful to outline briefly my campaign to raise awareness about low internet connection speeds and the bottlenecks and roadblocks in Telstra’s network as it creates the context in which these policy challenges must be tackled.  It looks at the experience of the telecommunications use, in particular the growing number of people seeking to connect to the internet from home.

Telstra admitted to extensive use of what is called “pair gain” technology. Don’t be surprised if you haven’t heard of pair gains. It’s not a term Telstra wants you to hear, for reasons that will become obvious. Effectively, a pair gain splits a line into two or more lines, and it has the effect of reducing Internet speeds for a standard dial up connection, sometimes significantly.

According to Telstra, the effect for the user at home can be to reduce Internet speeds for a standard dial up connection to around 26 kilobits. For Internet users who have bought a 56 kilobit modem, this is half the speed that they were expecting! And as for a faster connection, such as an Asymmetric Digital Subscriber Line (ADSL), forget it. A pair gain in this scenario is worse than a bottle-neck, it is a road block.

However, the extent to which pair gains have been used within Telstra’s copper network remains unclear.  Telstra said between 5 and 10 percent, the Minister has offered 8 % as the figure.  Even if only seven percent of Telstra’s 8 million or so customers were affected, this equates to hundreds of thousands of customers.

Knowing bandwidth is a hot issue for internet-connected citizens, I built a web page to survey people’s experiences.  My pair gain victims web site found at www.katelundy.com.au has had an extraordinary response.

Over thirteen hundred stories have been related to me over this website, painting a very disappointing picture of Telstra. I have been told how the telecommunications giant refused to advise customers of the effect of pair gains, and in some situations, falsely denied even using the technology.

When confronted by customers, Telstra hides behind the defence that it ‘sells a service, not a technology’. In other words, because they do not guarantee a minimum internet connection speeds when they sell you another ‘line’, you just have to cop whatever you get, whether it is 14.4 kilobits per second or 26.4!  This is not just arrogant and disingenuous – it is unacceptable, and to the informed internet user, downright insulting.

Considering how Telstra sells this technology to consumers who are seeking a second line into their home, often precisely for the purpose of improving access to the internet, it should not be surprising that pair gains are causing frustration to Internet users around the country.

Unfortunately, the problems caused by pair gain technology are not limited to Internet users with 56 kilobit modems and a dial-up service. Beyond the serious issue of slow connection speeds of standard dial-up connections, there lies an even more insidious effect of pair gains.

This pair gain arrangement prevents access to ADSL, a compression-based technology that allows a much faster Internet connection over a copper pair. 

Feedback from my web page has also shed some light on the constraints to accessing ADSL if Telstra has used RIM (Remote Integrated Multiplexor) technology.  This technology takes ‘fibre to the curb’ with copper rolled out to homes from there.  In the words of one frustrated, wired citizen “the use of RIM is entirely, entirely reasonable in a pre-broadband era, as a way to avoid digging up roads and putting in more copper.  But it kills ADSL dead.”

However, my survey indicates that RIM is the favoured approach by Telstra in new suburbs and housing estates in outer metropolitan regions across the country.  This is the scenario right now for many people: new home owners anticipate they will have access to the latest and greatest bandwidth opportunities because ‘fibre to the curb’ was perhaps part of the developer’s promotion of the housing estate.  The new owners may have even confirmed that the local exchange is ‘ADSL enabled’. Their disappointment is very real when they are told ADSL will never be available to them.

Add to this the fact that if you live beyond the 4km radius of an exchange you can’t get ADSL anyway, and suddenly the percentage of people who can potentially get affordable broadband diminishes again.  Those beyond this radius to those who find themselves ineligibility for the extended zones rebate for a satellite service are simply unable to get broadband through the existing infrastructure.  They are victims of the broadband divide.

So for all of Telstra’s rhetoric and advertising, they know full well that they have taken a decision to lock hundreds of thousands of Australians out of broadband.

Making matters worse is Telstra’s response to customers who speak up. The standard response to consumer complaints about slow Internet connection speeds appears to be an aggressive rejection of responsibility, implying ISPs, or indeed the consumers themselves, are responsible.

In the Senate budget estimates hearings, Telstra admitted that it is not their policy to ‘fess up and tell customers if they are on a pair gain, and that that could explain their slow Internet connection speeds.  Feedback from my website has confirmed that many people pursuing the facts about their connection have been treated with contempt by Telstra. This is a company that knows it is pulling a swifty, and doing everything they can to continue to get away with it.

Even if the use of pair gain technology has a legitimate role in maximising the profitability of Telstra’s existing network, there is no excuse for using it by stealth.

And this issue goes beyond just the fair treatment of consumers. According to feedback from my website, Telstra are not shy in using complaints about low connection speeds as an opportunity to promote their internet service provider product as a possible solution.  This raises issues of third line forcing.

It is little wonder that the ACCC is interested in Telstra’s activities in this regard.  They have confirmed they are now investigating this issue as a result of my campaign.

I raised five areas of complaint in relation to Telstra’s Pair gain and RIM systems these can be summarised as:

1.         Pair gain systems do not permit access to ADSL and RIM systems may make ADSL unavailable;

2.         Pair Gain and RIM systems lead to slower dial-up internet access;

3.            Consumers with pair gain systems pay the same amount of line rental as consumers without pair gain lines;

4.         Telstra, by not informing consumers when a pair gain is provisioned, may be engaging in misleading and deceptive conduct in breach of Section 52 of the Act.;

5.            Telstra’s advertising of its ADSL service may constitute misleading conduct in breach of Section 52 of the Act.

In response, the Commission has pointed out that under the current USO regime, that Telstra is only required to provide a service that will deliver voice telephony, no more.  This means that if your internet connection speed is anything under a miniscule 2.4kilobits per second, then you may have grounds for a complaint. 

Telstra was of course very quick to point this out once pair gain became public knowledge and people started complaining. 

However the ACCC does recognise there may be both Trade Practices Act and competition issues arising in relation to Telstra’s use of these technologies and they have asked for my assistance where Telstra have made representations to consumers about data services that were not realised by the consumer, particularly in relation to the use of a pair gain.

These facts and experiences expose the farcical nature of Telstra’s rhetorical commitment to broadband services to Australia. 

To appreciate the extent of this farce and the incredible frustration felt by so many people it is worth exploring Telstra's motivation for using pair gain technology in the first place.

Public comments from Telstra to date shed some light, with Telstra spokespeople unequivocally citing cost cutting as the motivation.  Pair gain technology was perfect. There were minimal infrastructure costs but rent could be charged on a whole new line, and voila: maximum revenue generation and bigger profits.

Telstra knows that if it cannot physically deliver this service then no company can.  What good is the emphasis on interconnection being the key to competition in the consumer access network when there is such a technical limitation?

So, regardless of what line-sharing agreements are made with other carriers or what ACCC declarations are made, no other carrier can get an ADSL service to those people either; it is physically impossible.  Citizens are left with expensive alternatives like satellite, cable modem or even ISDN.  For most the costs are prohibitive. 

As more people demand broadband access, the deficiencies of Telstra’s copper network will be increasingly exposed.  This will fuel speculation about the long-term value of this network and sharpen public awareness about the need for alternative infrastructure.

In light of recent line rental increases this is more important than ever. I am at a loss as to how allowing Telstra to increase the price for the element of their infrastructure that is the core of their monopoly will stimulate competition.  If there is any subsequent downward pressure on call costs as a result, that serves to decrease the margins for competitors and raise their access costs to Telstra’s network. 

As more and more Australians go online, Telstra’s legacy of cost cutting will be Australia’s Achilles’ heel in a global knowledge economy.  Tragically, the pain will be felt by all of us, hamstrung by Telstra’s underpar network.

But perhaps the biggest victims will be those in outer metropolitan, regional and rural communities, which by all accounts in both the Besley Report and the feedback I have been getting from my campaign, are more adversely affected. 

These are the same communities that have a much greater need and desire for broadband connectivity.  This is a well-established truth and their local economic and social strategies have clearly articulated this, many for over a decade now.

I have seen so many of these communities rally around and desperately try to establish a business case for alternative communications infrastructure.  As these strategies came close to fruition, Telstra moved from a stonewalling tactic to a passive resistance tactic.  Eventually this led to an active engagement tactic, where they insist on sitting around the table. 

The ACCC has proved next to powerless in challenging any of these tactics.  Whilst I have little doubt that the intentions of the individual employees of Telstra are genuine, this approach has served to deflect community support from alternative solutions, back to Telstra.

In the meantime, connectivity costs rise, service quality declines, Internet connection speeds don’t get any faster.

The latest is the quick fixes to allow the Coalition and Telstra to give the perception of delivering on Besley issues.  However the legacy that has made the consumer access network so limited in its potential is only being perpetuated by many of the solutions. 

I see it this way: The National Communications Fund and related Besley response programs largely serve to further entrench infrastructure that will inevitably have to be heavily reinvested in by someone if it is to be useful five years from now. 

In other words, these programs have the effect of embedding the problem, particularly in the already disadvantaged areas by giving them a false solution.  It also raises the costs and risks associated with the necessary reinvestment in that infrastructure.

It can be argued that many of the social bonus and Networking the Nation projects and programs have been used the same way, perpetuating this problem by continual ad-hoc investment.  Invariably too, these programs have seen Telstra’s position in the market enhanced.

I noted with interest some years ago the fact that in the assessment criteria for networking the nation grants, the proposal was not allowed to displace an existing carrier!  This point really emphasises the how crucial the relationship between Telstra and the Coalition Government in allowing Telstra to thrive while driving their customer base went mad with frustration. 

This takes me to my next focus, the relationship between Telstra and the Coalition Government.

The public debate about Telstra, their future and their place in the Australian market revolves around the capacity of the Government to regulate a minimum service standard, like the USO and the creation and management of a competitive communications environment. 

Both service standards and competition policy are crucial policy tools.  There is another however that is often overlooked.  This is the opportunity for Government to support and promote the growth of viable competitors in the same space that Telstra occupies.  This would seem an obvious corollary to strong competition laws.  However, the opposite seems to be the case when it comes to the Coalition.

First of all, there is the way Government programs designed to fix deficiencies within the telecommunications networks, including Networking the Nation, the range of Social Bonus programs, actually serve to perpetuate existing limitations.  Despite a huge amount of money having been spent through these programs, some $1.8 billion, nothing has be done to address the underlying structural flaws in the CAN infrastructure or indeed seen the growth of competing companies that may well displace Telstra’s dominance with a so-called disruptive technology.

I want to share with you three blatant examples of how taxpayers money has allowed Telstra to further maintain its grip at the expense of service quality and of course, competition.

The first relates to the Launceston Broadband Project.  This project was a originally a $30m joint project between the Coalition Government and Telstra.  Putting aside the pork-barrelling agenda, it seemed a worthy enough initiative.  It came at a time when there was lots of money being flung around as a result of T2. 

It was concerning to see that Telstra needed the incentive of the Government funding half their costs to embark on such an initiative, indicating the investment in a genuinely broadband network was obviously outside Telstra’s general path of research, development and to plans to deploy such networks. 

In a bizarre turn of events, Telstra used the experiment in a most extraordinary way to talk down the need for providing Australians with broadband.  I am not alleging they set the project up to fail, because I know the people running it were committed.  Rather when Telstra saw the lower-than expected take up rate, which occurred as a result of their failure to invest in basic components like marketing, they exploited it.

In a disappointing and condescending address at the World Congress on IT in Adelaide earlier this year, Telstra’s CEO cited the ‘failure’ of the Launceston Broadband Project as justification for their unwillingness to invest in broadband services.  This came in response to mounting pressure generally that Australia was falling behind in the roll-out of broadband.

It was astounding to see that the keynote presentation to the IT world congress in Australia by the CEO of Australia’s biggest-by-a-mile telecommunications carrier was devoted to why we don’t need broadband.  This absurd assertion led to an outrageous offer from Telstra to save us from ourselves, as they said they would give dollar for dollar support to the Coalition for another broadband fund.

The Coalition did their bit by announcing the Broadband Advisory Committee with Telstra the only major carrier sitting around the table. 

Ziggy Switkowski admitted at a press conference that Telstra and the Coalition Government ‘had dialogue’ before their respective announcements, being the Coalition’s Broadband Advisory Committee and Telstra’s token Broadband Fund. 

The whole exercise seems to be perfectly designed to again perpetuate Telstra’s ability to be a part of whatever so-called solution the Government prepares for shameful state of broadband communications in Australia. 

Telstra’s announcement to spend $10m on ‘Broadband Development’ is less than Telstra’s original contribution to the Launceston Broadband Project in the first place - confirming the token nature of the initiative.

It is a sad reflection that most of the general media lapped up this stuff and around the country people thought that something would finally be done about their awful internet connection speeds, drop-out rates and the high cost of broadband.

For the record, the national Office of the Information Economy (NOIE), in the latest Current State of Play Report, Australia’s scorecard, dated April 2002 states:

“ In terms of statistical benchmarking, Australia does not perform well with respect to the take up of broadband internet access at home.  Australia was ranked ninth in the study, with an estimated 5% of those connected to the internet using high speed access (DSL,, ISDN, Cable) placing us only marginally ahead of Italy and the UK.”

The second example of how taxpayers money has allowed Telstra to further maintain its grip at the expense of service quality and of course, competition is the Government's decision awarding the extended local call zone tender to Telstra in August 2001.  This would have been a great opportunity to promote alternative infrastructure in the remotest parts of Australia and the Government missed it altogether by awarding the contract to Telstra.

My understanding is that although it was a contestable exercise, in other words, carriers tendered for the contract, Telstra were able to bundle additional services over and above the specification to secure the contract.  I am assuming there was no breach of process.  While this is obviously a bonus in the short term for those consumers, how long will it be before Telstra limit the service and/or raise prices?  Like they did with the imposition of the three gigabyte per month limit on downloads on their cable service?  Once everyone has connected through a subsidised scheme, they are a captured market.

The longer term impact is that other potential carriers have less opportunity to establishing a business case to effectively compete with Telstra, who has been paid $150 million through this contract.

The third example relates back to my campaign about internet connection speeds that I detailed earlier in my presentation.  Rather than join with me and defend consumers rights and demand Telstra reveal the extent and impact of the use of pair gains, the Coalition has chosen to throw a cool $50 million of taxpayers dollars to help Telstra cover it up. 

The Internet Assistance Program (IAP) is a joint venture between Telstra and the Coalition Government.  The Howard Government claims the IAP will ensure Internet users across the country can achieve data speeds equivalent to a mere 19.2 kilobits per second.  While it is better that 2.4k-bits, it is a far cry from a decent dial-up speed and light years from broadband.

As part of this initiative, there is a web site hosted by Telstra www.iapselfhelp.com that allows you to punch in your phone number and test your modem speed.  It doesn’t tell your connection speed, just whether you are connected at more or less that 19.2 kilobits per second.

This condescending web site implies strongly that it is the user and/or their equipment that is at fault.  It is true there are many reasons as to why internet connection speeds are not optimal, including modem configuration.  But does it mention pair gains as a possible cause?  No way – not the last time I looked anyway.

And so the Coalition is content to sell out citizens by helping Telstra hide the awful truth about internet connection speeds and lack of access to ADSL from their customers.  This contrasts with the US, where there is a proliferation of sites advising how to avoid a pair gain and tips to maximise your internet connection speed.

The irony that these examples all identify schemes that are funded through the sale of Telstra should not be lost on anyone.  All of these examples have their own symbolism as to how damaging the collaboration between Telstra and the Coalition has been and will continue to be.

In the first example, Telstra used a partially taxpayer funded project that they obviously mismanaged at a very senior level, as justification not only for their failure to roll-out their broadband solution faster, but to present an absurd argument that somehow the Australian market was not ready for broadband.

The other two examples illustrate the range of policy mechanisms that if misused, can embed and perpetuate the problems, rather than tackle are resolve them.

We now know that Telstra’s technological solution for providing broadband through the Consumer Access Network (CAN), ADSL, has limitations significant enough to ensure it will never be ubiquitous.  There is also evidence that if Telstra’s network can’t provide the solution, then the corporation is determined to re-set community expectations by talking down the need for the solution in the first place.  Is this in the public interest?  No, of course not.

I can’t resist reminding you also that Richard Alston himself engaged in a little of this when he said during a debate with me in the election campaign last year that the only reason people wanted broadband was for playing games.  He obviously has never met a regionally-based software developer, a remote university student or a forward thinking local council.

All of this looks like game playing in the extreme, by Telstra and by the Minister.  The disturbing feature that this seems to be a preferred pastime that actually tackling the problems that prevent arguably the most deserving and politically important customers those in outer-metropolitan, regional, rural and remote Australia from getting affordable broadband.

Why is tackling these problems so hard?  The answer to this lies in Telstra’s legacy of the last decade or so of cost cutting in order to pretty up the books for privatisation.  Telstra’s capital expenditure on their infrastructure has been reduced by stretching the existing copper network.  Like any corporation driven by share price, this strategy probably seemed reasonable.  They are now so blatant that they have announced that there will be no capital investment unless it can return a profit in six months!  This is no way to prepare for the challenges of globalised economy.  Australians, and I believe shareholders, are clamouring for vision, for less short-termism, not more.

We know Telstra’s research priorities were diverted from new, infinitely more robust network infrastructure technologies like photonics in the mid nineties to a combination of data compression technology, like ADSL and line multiplexing technology, like pair gain and RIM. 

Whilst these technologies have a use, their overuse as a cost-cutting device by a monopolist carrier has now compromised quality, reliability, scalability, upgrade-ability and ultimately, affordability.

This is far too many compromises.

However, the need for broadband is not just a question of how this infrastructure is to be upgraded and how to make Telstra do it.  It is policy challenge that extends way beyond the incumbent myopic carrier and we should not get preoccupied with Telstra in identifying solutions

The policy tools of service standard regulations (like USO and CSG) as well as competition regulation require strengthening, but this is not enough.  These strategies should be complemented by connectivity programs designed to stimulate competition, not suppress it.

How federal, state and local governments aggregate their demand is also a potentially useful tool in providing the elements of a business case.  There is a real opportunity here to be pursued.  However, this will not happen federally when there is a conflict of interest for the Coalition Government with a privatisation agenda and a telco’ with a monopoly to hang on to.

This is where the issue of privatisation comes in.  Whilst ever the privatisation agenda is on the table, the Coalition Government have a reason to help Telstra maximise their profits, at the expense of service quality and long term investment in the future.  Until the privatisation agenda is dead and buried this conflict will not be resolved.

Obviously impact of further privatisation, as the Coalition propose would only exacerbate the negative impact of Telstra’s conduct in the market.

Labor understands this.  There is much to be done to improve telecommunications services and access to broadband and we will only do it by guaranteeing that privatisation is never an option.  We are unequivocal.

The way then will be clear to adopt what I like to think of as the carrot and stick approach:  where Telstra is copping some necessary stick and their competitors finally having a taste of the carrot.  By this I mean I would like to see Labor get serious about promoting infrastructure competition. 

There are exciting developments in the wireless area at 5, 3.4 and 2.4 gigahertz, the 802.11b standard and our national strength in photonics offers local as well as global opportunities.

We can ensure that Government funding and grants will not be used to further entrench Telstra's monopoly position.  We can ensure Telstra compete, if creating contestable markets is the best option, on fair terms, not using their vertical structure to unfairly undermine the competition. 

Obviously the more transparent Telstra’s internal relationships are, the greater the opportunity there is to understand their costing and pricing policy.  But just because we can see how Telstra are managing their internal arrangements, doesn’t mean the process will become fairer.  It is helpful with respect to interconnection but is only part of a broader solution that genuinely seeks to level the playing field.

Don’t be fooled into thinking the Coalition’s recent announcement to ‘ring-fence’ the business units inside Telstra will resolve this issue.  Excuse my informed scepticism when I say that it is more likely that, on its own, it will inspire Telstra to keep the Government closer than ever.

Labor is currently reviewing all our policies except our commitment not to sell anymore of Telstra.  I am a participant in that discussion and debate and today you have been given an insight into some of my thinking.

I want to take this opportunity to thank those who have participated in my online campaign on internet connection speeds.  Given it has highlighted that the law says only 2.4 kilobits per second is required to be provided, it shows how far we have to go.  But we are on our way and I will continue my efforts to tackle the broadband divide.

These issues will continue to ascend in relative importance in the lives of families and small businesses connecting to the Internet from home.  This is so because more and more essential services like health and education are being made available online.  The organisations that place services online, be they government, financial service institutions or media all have a direct interest in closing the broadband divide.  They should be striving for the best online experience for their citizens and customers.