Keynote: Paul
Fletcher,
Parliamentary
secretary to the
communications
minister, Australian
Government
Keynote Speech to
Australasia
Satellite Forum 2014
: Paul Fletcher,
Parliamentary
secretary to the
communications
minister, Australian
Government
Tuesday, 20 May 2014
I am very pleased to
join you at the 2014
Australasia
Satellite Forum.
There is no doubt
that satellite
communications has a
special importance
in a country as
enormous – and in
many places as
lightly populated –
as Australia.
Over ten years ago,
as an Optus
executive, I saw a
very powerful
demonstration of
this, at the launch
of a School of the
Air application
delivered over the
Optus satellite.
As part of the
launch, we visited a
customer’s premises
– some two hours
drive east of Alice
Springs.There we
watched a ten year
old boy doing his
lessons on a
computer, watching a
live video broadcast
of his teacher.
In the corner of the
room there was a
boxy old VHF radio
set – which he had
been using until
just a few weeks
earlier.
It was a powerful –
and moving –
demonstration of how
improved
communications
services can change
lives for people in
remote Australia, in
this case through
giving a young boy a
vastly richer
educational
experience.
Today I want to
reflect on the three
‘P’s of public
policy concerning
satellite: its
potential; its
perils; and what is
good practice.
I will start with
the potential –
thanks to
satellite’s superior
economics in remote
locations.
Next I want to talk
about the perils –
looking at both
AUSSAT in the
eighties and NBN
some thirty years
later.
Finally I want to
talk about good
practice – and what
the Abbott
Government is now
seeking to do in
satellite
communications.
The Potential of
Satellite
Let me turn first,
then, to potential.
Almost as soon as
the first satellites
were launched – the
Soviet Union’s
Sputnik 1 in 1957,
followed by the
USA’s Explorer 1 in
1958 – people began
to see the potential
of satellite for
communications with
places that would
otherwise be
virtually impossible
to reach
economically with
terrestrial
infrastructure.
Australia was an
early participant in
international
organisations like
Intelsat and
Inmarsat.[1] But by
the late seventies
there was a growing
appetite to have our
own satellites.
The 1979 National
Communications
Satellite System
Working Group Report
concluded, amongst
other things, that
A significant
proportion of the
existing 10,000
manual telephone
subscribers in outer
rural areas could be
provided with
automatic telephony,
television and radio
broadcasting
services by
satellite at a cost
significantly less
than that required
to produce the same
services by
terrestrial
means.[2]
Some thirty years
later, much the same
issues were
considered by the
McKinsey/KPMG
Implementation Study
- commissioned by
the Rudd Government
to retrospectively
fill in the details
after announcing its
hastily conceived
NBN policy.
The Implementation
Study observed that:
Satellite services
will continue to be
important for
providing broadband
in the future due to
the prohibitive cost
of serving
lowest-density areas
with other
technologies.[3]
Both reports are
making the point
that satellite is
the cheapest way of
serving very remote
locations.
But satellite is not
cheap in an absolute
sense; in fact on a
per customer basis
it is very
expensive.For example,
it costs around
$7,300 per user to
deliver services via
NBN Co’s Interim
Satellite Service
(ISS). [4]
Satellite’s real
merit is that while
it might be high
cost, that cost
remains unchanged
regardless of
location.
A fixed network,
whether copper or
fibre, has a low per
customer cost in
high population
density areas but it
rises very quickly
as population
density falls; and
wireless sits
somewhere in the
middle.
To quote the
Implementation
Study:
Unlike fibre and
wireless, a
satellite solution
has a large fixed
cost…but if spot
beams provide
national coverage
there is no
incremental
investment to serve
additional premises
other than in CPE[5]
Therefore as you
move to lower and
lower population
density areas, first
wireless and then
satellite become the
economically
preferred
technologies.
Given these
fundamental
economics, the
Coalition has always
acknowledged that
the choice of
wireless and
satellite as
technologies for NBN
Co to use in serving
regional and remote
Australia is
sensible.
And the Coalition
has demonstrated by
its actions, as well
as its words, an
understanding of the
contribution
satellite can make.For example,
in 2007, the Howard
Government
introduced the
Australian Broadband
Guarantee targeting
homes and small
businesses that did
not have
metro-comparable
access, and
providing subsidies
for costly satellite
access.
The Perils of
Satellite
Given the potential
of satellite as I
have discussed,
governments tend to
approach satellite
rollouts with
enthusiasm.Sadly, that
enthusiasm does not
always end well –
for satellite poses
many perils for
communications
policy makers.Let me
discuss three:
financial,
operational and
pricing.
Financial Risk
The Aussat
experience of the
1980s is a powerful
example of the
financial risks to
which a
government-backed
satellite venture is
exposed.
The decision to
establish Aussat in
1981 followed the
1979 report I quoted
earlier, which
concluded that if
such a venture was
to proceed it would
need to be
government funded:
For a number of
reasons, it appears
that there is little
prospect at the
current time of any
private sector
funding of the space
segment of a
national satellite
communications
system, and that the
burden of funding
could fall to the
public sector.[6]
By 1987 AUSSAT had
launched three
satellites, with the
intention of
supplying
communication
services for
consumer and
military purposes,
as well as
television services
to remote regions.
[7]
AUSSAT faced
technical and
financial
difficulties from
the outset.
Between 1981 and
1991 there was only
one year in which it
managed to make a
profit.[8]By the early
nineties it had
debts of $800
million and was
clearly
unsustainable.
This was a tricky
problem for the
Hawke-Keating
Government
–eventually solved
when it issued a
second
telecommunications
licence as part of
the reform process
of the early 1990s.This licence
was a valuable and
attractive asset,
but it came with a
condition: the
requirement to take
over AUSSAT.
The government
raised $800 million
from the issue of
the second licence –
but was required to
pay $799 million to
clear AUSSAT’s
accumulated debts
before the
transaction
proceeded.[9]
No doubt informed by
this sad history,
the 2009
Implementation Study
was clear in its
recommendation: it
would not be a good
idea for NBN Co to
own and operate its
own satellites.
Instead, it
suggested a leasing
model utilising
third party
satellite
infrastructure, on
the grounds that:
a leasing model
avoids large upfront
investments and
enables NBN Co to
adjust capacity to
demand flexibly,
within the limits of
agreed contract
conditions.[10]
But Senator Conroy –
with the support of
eager empire
builders at NBN Co –
was convinced he
knew best. He
decided that NBN Co
should blithely
plunge into the
complex challenge of
owning and operating
its own satellites.
Hence in February
2012, NBN Co
announced that it
had signed a
contract with Space
Systems/Loral for
the delivery of two,
next-generation
Ka-band satellites
and associated
tracking, telemetry
and control
systems.[11]
Operational Risk
As the AUSSAT
experience shows,
owning and operating
satellites involves
huge financial risk.
But as I hardly need
remind this audience
there is also
enormous operational
risk – especially
early in the life of
a satellite.
NBN Co’s recently
released Fixed
Wireless and
Satellite Review
highlights two of
the most serious
risks the company’s
satellite program
faces: launch
failure and on-orbit
failure.[12]
For those not
familiar with the
satellite industry,
it can be difficult
to understand that
after spending
hundreds of millions
of dollars to build
and launch a
satellite, there is
a non-trivial risk
that the satellite
will blow up on
launch.
Of course it is
relatively unlikely
that this risk will
materialise. But
other risks, while
less catastrophic,
can also cause
problems – for
example a delay in
the build and launch
timetable.
The Fixed Wireless
and Satellite Review
revealed that the
NBN Co spacecraft
build and launch
timetable has very
little remaining
contingency time
available, relative
to what other
satellite programs
would typically have
at this stage of the
build.[13]
NBN Management has
taken a prudent
decision, following
the Review, to move
the target date for
the activation of
the first NBN long
term satellite to
the first quarter of
2016.
As the Review also
highlighted, a
number of decisions
taken under the
previous government
have contributed to
the risk of delay –
particularly the
fact that the
satellites NBN is
buying are both
novel and complex in
design.
They are the first
Ka- band satellites
serving the
Australian market,
and in addition are
very complex in
design due to the
large number of
beams (101)per
satellite.[14]
The Review report
points out that in
programs of this
nature, industry
evidence suggests
delays of between
3-6 months are not
unusual.
Misunderstanding
the economics of
satellite
The third big risk,
which bedevils
government-backed
satellite ventures,
is the risk of
mis-pricing services
– typically due to a
misunderstanding of
the economics of
satellite.
In the case of
Aussat, the problem
was that prices were
simply too high for
the market to bear.To quote from
an article by Peter
White, a
communications
analyst who has
closely studied
Aussat’s history,
The $1000 television
and radio ground
stations promised by
the government cost
much more than
expected…The School
of the Air and its
clients struggled to
purchase the
expensive equipment
needed for two-way
communications…Predicted
revenues were not
achieved and AUSSAT
generated large
losses.[15]
In the case of NBN,
a different but
equally serious
mistake was made – a
failure to
understand the
importance of
setting prices and
packages in a way
which would most
fairly allocate the
finite capacity on
the satellite.
Here I am
specifically
referring to the
grave mismanagement
of the Interim
Satellite Service,
or ISS, which was
announced with great
fanfare by the Labor
Government in 2012.This was
promised to offer a
6 Mbps download
speed.
To provide the
service, NBN Co
leased capacity on
satellites owned by
two existing
operators, Optus and
IPStar, at a cost of
$351 million.
The former
Communications
Minister, Stephen
Conroy informed the
nation that 250,000
households were
eligible for the ISS
– but NBN Co only
purchased enough
capacity for 48,000
users.
As a consequence of
NBN Co’s
mismanagement, the
end user experience
has increasingly
degraded, as some
retail service
providers and a
minority of heavy
users have evaded
the ‘fair use’
policy by
downloading large
volumes of data and
leaving very little
capacity available
for other users.
The result has been
that at peak times
the customer
experience is little
better than dial up.Indeed, there
are customers who
report that they
cannot even send an
email.This is a
terrible end user
experience – and it
is a terrible public
policy outcome when
the Commonwealth and
ultimately taxpayers
are paying a very
large subsidy of
approximately $7,300
per service.
The root cause of
the problem is that
the interim
satellite solution
was designed with a
network capacity
allocation per end
user of around 30
kilobits per second
average busy hour
throughput.This jargon
term, familiar to
those in the room
but possibly not to
others who may read
this speech, is a
measure of the
average speed at
which data is
downloaded, across
all end users in a
satellite beam, over
a period of time.
When you work
through the maths,
this equates to a
bit over 9 gigabytes
per month that each
user is able to
download.
Yet some retail
service providers
were selling plans
to end users
offering monthly
downloads as high as
60 gigabytes.
In other words, the
retailers had sold
end users the right
to download, in
total, much more
data per month than
the satellite could
actually carry.
This seems to have
happened for a
combination of
reasons.First, NBN Co
did not establish
the proper tools to
control - or even
monitor - the total
amount of data
consumed by an
individual retail
service provider
(or, more
accurately, the
customers of that
RSP.
This meant that if
some RSPs did the
right thing, and
stuck to selling
plans which were
consistent with the
actual amount of
capacity available
on the satellite,
but others did not,
then there was no
way to police the
non compliant RSPs.
In turn, the actions
of the non-compliant
RSPs led to a
degradation of the
customer experience
not just for their
own customers but
for all end users on
that particular
satellite beam.
But the second
reason it seems to
have happened is
that NBN Co did not
properly understand
that the capacity
limitations on
satellite are
fundamentally
different to those
on other networks
such as fibre to the
premises or fibre to
the node.
It should have
established pricing
which would fairly
allocate the
available capacity
amongst all end
users – but it
demonstrably did not
do so.
Good Practice
I have spoken about
both the potential –
and the pitfalls –
of using satellites
to achieve public
policy objectives.In the final
part of my remarks I
want to speak about
good practice – and
how the Abbott
Government is
applying this good
practice in our
approach to the use
of satellite
communications.
Recognise Where
Satellite is Well
Suited – and Where
it is Not
The first priority
is to recognise what
satellite is well
suited for – and
what it is not well
suited for – and to
use it accordingly.
When we came to
government, Minister
Turnbull and I were
startled to discover
that some on the NBN
Co Board seriously
thought the fixed
wireless rollout
should be abandoned
as it was all too
hard, and NBN Co
should launch a
third satellite
instead.
In my view, nobody
with serious senior
management
experience in the
telecommunications
industry would
entertain this
belief. But of
course such people
were sorely lacking
on the previous NBN
board.
More generally,
there was a widely
held view in NBN Co
that if they had
originally planned
to serve the
customer with fibre
or fixed wireless,
but for some reason
that now looked
difficult, there was
no need to worry
because satellite
would pick up the
customer.
Unfortunately, while
other parts of the
company would rule a
line through
particular areas,
their colleagues
planning the
satellite rollout
were not necessarily
told they were now
responsible for
these premises.
In the slightly more
polite words of the
Fixed Wireless and
Satellite Review,
NBN Co’s ‘functional
siloed
organisation…inhibited
visibility and
effective decision
making across fixed
wireless and
satellite.’[16]
The Review
recommends that in
future NBN Co should
take a very
different approach,
and put in place
protocols to ensure
that scarce
satellite capacity
is actively planned
and ‘owned’ within
the company. It
specifically says
that NBN Co should
not rely on
satellite technology
as a ‘back-stop’ for
other access
technologies.
The Review also
recommends that NBN
Co strike a very
different balance
between satellite
and wireless than
was previously
proposed: going from
39% of users on
fixed wireless and
57% on satellite, to
57% of users on
fixed wireless and
40% on satellite.
This will require
almost doubling the
number of fixed
wireless base
stations from 1,400
to 2,700.
Importantly, this
approach will mean
that the scarce
capacity on the
satellite is
reserved for the
users who really
need it – and who
cannot practically
be served by other
technologies – and
in turn ensure that
there is sufficient
capacity so that
they receive a good
quality user
experience.
And it will avoid
the $600 million
cost of a third
satellite– for many
years at least –
allowing more
spending instead on
expanded fixed
wireless capacity.
Have a Serious, Long
Term Plan for
Regional and Remote
Communications Needs
– With Satellite
Playing Its Rightful
Place
The second element
of good practice for
satellite policy, I
would argue, is to
fit satellite within
a broader context of
a serious plan for
regional and remote
communications
needs.
The Coalition has
always been more
serious than Labor
about communications
services for
regional and remote
Australia. We
represent the bulk
of the regional and
remote electorates
in the Parliament
and many of our
parliamentarians –
including some of
our most senior ones
– live outside of
the capital cities.
When it comes to
regional and remote
communications, the
Coalition has set
out some clear
priorities.
First, we want to
optimise the
operational
performance of NBN
Co’s wireless and
satellite
businesses.Clearly, the
company’s fixed
wireless and
satellite review is
an important step in
this area.
For example, the
Review identifies
some clear actions
to mitigate risk in
the satellite
program, including:
Creating a dedicated
team within the COO
function to manage
the operational
scale-up of both the
fixed wireless and
satellite network
operations; and
Executing 14
specific actions
that will help to
further de-risk the
satellite program –
such as engaging
experienced
specialists in
specific areas, and
engaging with the
installer industry
more than 12 months
in advance of the
LTSS commencement to
give them time to
ramp up their field
forces.[17]
A second priority is
to speed up the
rollout and deliver
fixed line broadband
services in more
country towns which
otherwise would have
received only
wireless.The review
recommends that some
25,000 premises in
regional towns could
be served by high
speed fibre to the
node services -
rather than either
wireless or
satellite.Again, this
will help maximise
capacity on the
satellites for those
premises which they
do serve.
The third priority
is to leverage the
NBN build to better
support mobile
communications in
regional and remote
Australia,
particularly by
enabling co-location
of both mobile and
broadband equipment
on the same tower.
Fourthly, we are
giving specific
funding support to
extend mobile
coverage in regional
and remote
Australia, under our
policy to invest
$100 million to
expand the mobile
coverage footprint.
Understand
Capacity Limitations
– and Don’t Oversell
The next element of
good practice is to
design the NBN
satellite product
offerings with a
good appreciation of
the available
capacity on the
satellite.
Labor’s approach was
to pretend that
satellite has the
same capacity as a
fixed service – and
to seek to offer an
identical service
over satellite as
over the other two
networks.That simply
will not work – as
the interim
satellite service
fiasco has shown.
This issue is
discussed
extensively in the
fixed wireless and
satellite review,
which recommends a
network capacity
allocation per end
user of around 150
kbps[18], as well as
offering an upgrade
plan for a higher
charge which would
provide higher
capacity allocation
and monthly download
limit.
As well as getting
things right on the
long term satellite
service, we are also
working to improve
the interim service.NBN is
purchasing
additional satellite
capacity, so that
what is allocated to
each user will be
boosted by around
one-third.
Also, NBN Co will
deploy new
monitoring tools to
better manage
existing ISS
capacity – and help
prevent a small
proportion of high
volume users
unfairly slowing the
service levels of
all other users.
And in coming
months, we will
commence a subsidy
scheme to help up to
9,000 homes, farms
and small businesses
unable to access the
ISS to purchase
commercial satellite
services, based on
the Australian
Broadband Guarantee
scheme which
operated effectively
in the Howard
Government years.
Why Build a
Business When You
Can Buy Capacity
A fourth element of
good practice is to
avoid, where
possible, owning and
operating a
satellite business,
and instead seek to
purchase satellite
capacity from a
specialist operator.
The Coalition has
consistently said
that we will
consider
opportunities to
realise value from
the satellite
contract by seeking
private operators or
owners for the NBN
satellite service,
if this enables
price and service
levels for regional
consumers to be
improved.[19]
The Review
considered this
approach – but did
not recommend it at
this point, although
it said NBN Co
should remain
prepared to evaluate
acquisition or
partnership
proposals from
private industry on
their merits. [20]It also
pointed out some
other options
including ways to
commercialise any
spare capacity on
undersubscribed
beams.
Of course the Review
is giving the views
of NBN Co.From a
government
perspective, we
continue to be
interested in the
possibilities on
this front if the
issues raised in the
Review can be
overcome.
One is that at this
stage any potential
purchaser would be
taking on the launch
risk, and would
probably require a
significant price
discount to
compensate.While a
successful launch
would cure that
problem, another
problem is that the
NBN satellite
service loses money.
Hence any private
sector appetite is
likely to depend on
how much transponder
capacity is not
being used to serve
the NBN customers,
and hence could be
monetised by a
private sector
operator.
Conclusion
Let me conclude by
repeating the
observation that
Malcolm Turnbull
made when launching
the Coalition’s
broadband policy in
early 2013.
If it were our
choice, in trying to
get to the policy
objective of an
improved broadband
infrastructure, then
in the words of the
old Irish joke, we
would not have
started from here.
That is as true of
the satellite
network as of the
other two networks.The lessons
of the AUSSAT
debacle are very
clear – but Labor
wilfully ignored
those lessons in the
decisions it took
regarding satellite.
Some of Labor’s
mistakes – such as
the hopelessly
incompetent approach
to allocating the
finite capacity on
the satellite – can
be corrected.Others we are
stuck with.
Nevertheless, we are
determined to do our
best to get the NBN
rolled out in the
most rational way
possible – given
where we started
from.
When it comes to the
satellite portion of
the NBN, that means
recognising the
unique strengths of
satellite and making
sure we use it
wisely in the
locations where it
has an advantage.It also means
not trying to use
satellite to serve
customers that it is
not well suited to
serve.
That is the best way
to bring sharply
improved
communications
services to regional
and remote
Australians – and to
continue to use
satellites to
transform lives as I
saw in Alice Springs
a decade ago.
