Ecommerce in Australia Stuffed – Or is that about to Change

A section of my
Introduction to the

 Responses to

Digital Economy
Future Directions

Consultation Paper

By Thomas P. Koltai,
on Behalf of Perceptric Pty. Ltd.


Submitted 10th of February – Before the Governments National
FTTH rollout announcement and before the ACCC ruling against Telstra on last mile local
loop. – A section of my introductory remarks.


History – A Lesson
in what not to repeat

Past governments,
with an eye to maximisation of short term advantages to the Australian taxpayer may have
thrown away the baby with the bath water, with the assignment of control of the last mile local
loop to Telstra.

This has left Australia with no neutral
options as to the provision of an easy economic destination for its Broadband

In respect of the
initial comments in the Introduction here-to-before, my key observation is that under the
Governments planned NBN the proposed technology does not address the reality
that only fibre to the
home and useable ISM spectrum will be a long term adequate infrastructure play.

As an alternative,
rather than implement a second hybrid Fibre/Coax/DSL solution for the country, I would strongly
recommend that the Government prioritize an analysis of unallocated spectrum in the 2.6-3.4 GHz
range – suitable for the interconnection of mobile and personal computing devices.

My contention is
that since the previous government included the last mile copper in the Telstra sell-off, it left
us with a legacy monopolistic approach to the last mile. It is therefore the Government’s
responsibility to right this wrong.


An article by Mr.
Richard Chirgwin posted on his Blog on Thursday,
May 01, 2008 expresses what I
consider to be the opinion of the majority of informed ICT professionals in
Australia. (With the
obvious exception of Telco and Treasury employees.).


Digital Dividend
or Free Spectrum?

So what's the
value of the “digital dividend”?

The question
arises because that silly expression is so ineradicable in the political
lexicon. A
dividend” is out there somewhere, we just have to (as Senator Conroy put
it) “put in the
hard work”
and we'll reap the rewards.

The commercial data
that led to
America's recent spectrum
auctions raising $19 billion aren't on
the public record.
We don't know how many people Verizon and AT&T consider to be the
population of their spectrum. But the price tag provides a hint: the premium paid
the spectrum tells
us that the spectrum will be used to deploy broad-based services. The
ideal, that TV spectrum could deliver broadband to those without fast wired
won't come true in


If we assume that
the spectrum is destined for broad-based services, then population is a good
way to look at the
value of spectrum from the outside. The auctions raised $19 billion;
America has just over 300
million people; so the per-person value of the spectrum is about $63.

And if that figure
is applicable to
Australia, the digital
dividend would be just over $1.2 billion – or
three years'
interest on the Communications Fund.

While $1.2 billion
is a lot of money, it's not much in terms of the total economy, which is close
$650 billion – and
there's no guarantee that investors in
Australia would put the
same value on
new spectrum

There was,
however, a very interesting nugget in Senator Conroy's speech to the ACMA
conference last week: the Ofcom estimate that radio spectrum contributed £42
to the UK economy. It's not
actually news (the report was published in 2006), but still interesting.

Instead of
focussing on the price tag, though, the employment impact is worth noting:
claimed that spectrum
use contributes to 240,000 jobs in
Britain, or 0.7% of the
workforce. That

would be about
70,000 jobs in

The way to
maximise jobs growth based on spectrum would be to make spectrum applications


If you accept that
the likely “digitial dividend” is going to be small (and $1.2 billion
only sounds
big), perhaps the
idea that the spectrum should be opened up for free (or close to it) isn't so

Those who entered
the fray would be able to focus on infrastructure and services rather than
having to design
the business plan around recovering money over-spent at auction.

Look again at the US experience. What
are Verizon and AT&T going to do with their expensive
spectrum? Verizon
is talking 4G cellular services, while AT&T is talking about a network that
support 3G

Somehow, it's hard
to wax lyrical about spectrum bought to support a network-locked toy phone
(with no apology
to Apple fanboys) in a new cellular network. Whatever is claimed for new mobile
networks, they
remain focussed on the urban market, because that's where the people are.

The widespread
belief that the digital dividend will bring new rural and remote services is a
delusion. Unless
political thinking changes – and unless somebody pops the wishful expectation

of a huge payoff
to general revenue – the digital dividend will end up with the same urban focus
as is clearly
emerging in the


I might also
mention the amazing lack of initiative by the Unwired Group – recently
purchased by

channel 7 – to
fulfill the promise for the spectrum that they purchased.


When the Auction
was announced, the then acting ACA Chairman, Dr Bob Horton, said
that the

Authority was very
pleased to bring the 3.4 GHz spectrum to the market:


“This particular
part of the spectrum offers opportunities for a diverse range of communications
services, from
wireless local loop to broadband Internet services, and should lead to
product and supplier diversity, and therefore benefits for consumers,” Dr

Spectrum is
available in
Adelaide, Albury, Bendigo, Brisbane, Cairns, Canberra, Hobart, Launceston,
Melbourne, Perth, Rockhampton, Sydney, Toowoomba and Townsville and regional
areas of Queensland, New South Wales, Victoria, South and Western
and Tasmania.





A total of 100 MHz
is available in each of 14 major town and city areas and 65 MHz in each of
five regional
areas. The spectrum will be presented as standard size lots of 3.5 MHz with the
exception of two
lots of 4.5 MHz in each of the 19 market areas.”


I have been an
Unwired customer for six years. I am still awaiting the diversity, competition
other benefits
promised to customers.


Today, nine years
after deployment, Unwired is available in Sydney and Melbourne only. As one
of the only real
alternatives to last mile copper it has languished for nearly a decade
recovering a
mere fraction of
its original capitalisation costs and locking out its use to other possibly

start-ups. The 37 million dollars provided by Intel didn’t seem to help in
their coverage
area either.


spokesperson Amanda Wallace said that the company was looking into which cities
would get an
Unwired roll-out first, but would not be announcing its decision until closer
to the
launch date in
2006. When the roll-out is complete, Unwired's service will be available to 66%

the population,
Wallace said.

That didn’t quite
seem to happen.


Austar was the
other major purchaser of 3.4 GHz spectrum. This was presumably based on a
strategic business
plan that I was commissioned to write for the CEO, Don Hagans, in 1996 . This
was based on the
premise that wireless could provide the last mile delivery of Broadband via 3.4

GHz together with
premium Video on Demand Services.


Bob Horton’s later
ii on Spectrum
auctions is as follows:


Acting ACA
chairman Bob Horton said the ACA would be accelerating the
management of the

“We will
continue to use spectrum auctions in appropriate circumstances where demand
supply,” he
said. “Several companies using spectrum won at auctions are achieving
results that have
only been possible because we adopted a market-based approach.”


He most obviously
was not referring to Unwired or for that matter, to AAPT.


AAPT with its 28.8
GHz spectrum, purchased for $66.3 million, has also failed to deliver an
equitable widely
adopted last mile alternative.


Granted, it
purchased the spectrum with a view to build a microwave tower link between
and regional
cities, however engineers are adamant that alternative utilisation could be
quite easily.


Similarly Optus
invested a substantial amount ($59.7 million) and has yet to roll out a

Optus ready for
business with LMDS network
28 Nov 2000

Cable &
Wireless Optus announced that it was successful in bidding for spectrum in
today's 27
GHz auction held
by the Australian Communications Authority.

The spectrum is
best suited for broadband wireless access, including the use of
Local Multipoint Distribution
System (LMDS) technology.


Chris Hancock,
Managing Director, Data & Business Services, said that Cable & Wireless
was very
interested in all access technologies that provide an opportunity to expand
access new
customers, reduce the costs of services and allow the introduction of greater
competition to the




There have not
been any announcements about the use of the spectrum since it was purchased.


Could he have been
referring to the Austar 3.4 GHz which last year was primed for sale for a record 52
Million dollars to
Optus subsidiary local loop player, Opel?

The record was the
loss – 128 million dollars for spectrum that had not been utilised during the
intervening years
between purchase and sale.


Spectrum Licences
expire in 2015, or, considered in a different manner, last 180 months. Austar
sat on its
spectrum licenses for 96 months, and therefore in effect lost 32 million
dollars on the
spectrum’s current
value (unless one calculates the additional population growth between 2000
and 2008).

(No offense boys and girls – but who do you think bears that loss ? The Government or the Taxpayers through increased subscriber servcie charges.)

Nevertheless I am
sure that this is small consolation to Austar’s shareholders.

An interesting
observation on the recent sales of spectrum licenses by licensees to other
licensees is the
move to consolidate control of these strategic assets between several of the


There are a great
number of commercial developments in other parts of the world that could have
already been
employed in
Australia utilising the
above spectrum to deliver a series of cost
broadband solutions for all of

when competing with a deep-pocket group of monopolists, the price of spectrum
easily bid up to a
price where the successful purchaser is unable, without additional
to utilise the spectrum in a meaningful manner.

Possibly the
Optus/Opel acquisition may have if it were able to survive the funding
heralded a robust
2-30 Mb per second wireless broadband local loop to offer real competition in
Australia. As may the
Channel 7 acquisition of Unwired.


The spectrum game
to date has been an additional taxation revenue generator for the
Government but
with little material benefit returned to the Australian people with the
exception of
higher prices for a longer period to pay for the exorbitant prices of unused spectrum

assets gathering
dust in a filing cabinet.


On the basis of
the above examples, I entreat the Government to err on the side of deliverable
bandwidth to those
that need it most, driven by an industry (WIFI) that is devoted to getting the
maximum out of
what little ISM bandwidth it has been able to utilise.


Estimates of the
2.4 GHz WIFI market on a global basis exceed 1.3[
US] Trillion

Translated into
Australian dollars per capita, that provides a price of $390 per man woman and
child. To me that
appears to be approximately the price of a home router CPE and a 15 db gain
antenna for the
following innovative idea:


The World of Make

In a perfect
world, a Government that wants to ensure connectivity to and for its population
look at delivery
of connectivity on multiple platforms.

Cell phones (the 7th Mass Mediaiii), Wireless
Broadband and Fibre to the Home.

In this example –
I have selected unsold spectrum in the 2-5.9 GHz range reserved by the
government for
lease by any carrier prepared to build the infrastructure – and based on equal

The cost for the
spectrum used shall not exceed $1 per user per Mb connection speed per month

– to all carriers.

i.e.: a 256 Kb
broadband connection would be licensable at 25
¢ per month.


This would result
in an equivalent return to the Government based on user numbers – without the
uncertainty inherent in a fifteen year licensing environment. Minimum service
provided would be
256kb broadband, with additional services such as QOS guaranteed VOIP and

“wireless fixed
line services” as a subscriber requested add-on – extending the bandwidth of
course at the
appropriate pro-rata licensing fee.

would consist of a series of towers following
Australia’s main highway
system with
adequate fibre to
the tower network to ensure that every Australian within a 35-65 km range of
the tower network
can obtain between 256Kb and 30 Mb per second of data services.

Each alternative
tower can either be leased to incumbent telecommunications players on a
basis with the maximum quantity of towers leased by any one carrier
being regulated as the
total number of towers, divided by the total number of carriers. In this
manner, no one carrier can
dominate the spectrum, and by extension, Australian

Each carrier
tendering must commit to offering an OC-48 or better interconnect regime at
settlement at the
exchange level.


Transit costs to
be negotiated between the carriers – spectrum allocation should make allowance
for long haul
(micro-wave) alternatives (via low cost special purpose apparatus licences) to
fibre backhaul to
lessen the potential of possible anti-competitive collusion.


Benefits to government in this model include – shared and ubiquitous
responsibility for
Universal Service

Benefits to Telstra and Optus – USO load redistribution.

Benefits to consumers – competitive redundant connectivity options.


Community Fibre

As an alternative –
but it is my contention that this is additional too and not as an alternative;

Communities can be
encouraged to provide their own fibre loops.

i.e.: Home owners
can form co-operative last mile telecommunications infrastructure suppliers
and similar to
school fetes, garage sales, cake bake-offs and other community fund-raising
exercises, raise
the required capital to implement Fibre To The Home.

Each home owner in
the community co-operative can dig their own trench alongside the driveway
from the kerb to
the end of the drive way.

If everyone in
Australia dug their own 450 mm deep, (average) 6 metre long 100 mm wide trench,
and placed 1 or 2
(6m length) electrical conduit 15 mm pipes in the trench – preferably
terminating next
to the house., then nearly $180.00 per home would be saved lowering the
estimated 1997
capital cost of FTTH to $220.00 per home for the fibre; street crossings and
ditch-witching required on nature strips.

That’s an Australia wide saving of
$1,098,000,000. Unfortunately, this proposal would only work
in the housing
suburbs and not metropolitan areas.

It is my
contention that most apartment buildings are now constructed with digital
frames, many
already with
planned or existing fibre terminations. Regrettably, a great many of the
installations are
Telstra-only termination.

Upgrading older
copper analogue based MDF equipped buildings has not been costed. But it
would be
interesting if the newer suburbs, in NSW – past Penrith, were automatically
with fibre.


The economy of the
poorer suburbs would surely receive a technological boost and race past the
inner city suburbs
enabling real teleworking and additional opportunities for the mobility
challenged and

Communities that
achieve 51% penetration in their suburb’s (areas) should be connected via
federal funding to
the closest exchange where they would be connected via a neutral fibre optic
switch to the
preferred services.

To ensure
competitiveness – both in quality of service and a pricing model designed to
encourage, not
discourage, telecommunication product utilisation, this connection should under
no circumstances
ever be offered as a bundle connection to only one carrier.


The Redefinition
of Business.

As we move deeper
into digital commerce, interest groups will occasionally attempt to stem the
tide, fearful that
their business model will become redundant in a digital world.

The most obvious
example of industry concern was that raised by the Postal services of various
countries who were
concerned that the advent of Email would extinguish their profits.


The Royal Mail

In the United Kingdom in 1825, the cost
of a sending a letter from
London to Glasgowiv via carriage mail cost
as much as a day's wages (1sh.1½d)
v for a working man (9 shillings per week)vi.

devised a route via coastal shipping to decrease this cost to eight pence,
providing a
saving to the
working man of five pence – but at a risk of piracy and shipwreck.

Was there an
outcry of anti-competitive behaviour? Only from the coach and rail operators
saw their profits
disappearing as HMPO set-up a dispatch office in the Merchant Marine offices at
the docklands.

Amidst fears that
email would nullify the mail service, the US Postal Service in 1995, issued a
of tender
documents to set-up a modem email gateway service so that people could send
mail via
their paid
network. The postal service was needlessly concerned.

With the Internet,
online shopping arrived together with a requirement for parcel delivery and the
requirement for
tracking parcels (albeit with some glitches in the system).

The universal
service obligation of rural parcel delivery has ensured that the Bundespost,
Mail, US Mail, Australia Post et al, have
redesigned their rapidly evolving business models
utilising external
contractors for parcel delivery.

It may well be
that something similar saves Telstra when they finally divorce themselves from
reliance on the
copper loop and change tack to adopt a wireless model as mooted in the recently
released “Interim
Report on a Digital Britain”
viii. An intent to follow the enhanced wireless

broadband rollout
may have been the real reason for Telstra’s “failure” to partake in the
governments NBN

Empirical data is
lacking on the comparative transaction costs of conducting commerce via
methods: bricks and mortar store, face-to-face, mail order, telephone, Viatel,
Minitel and now the Internet. However, Ruth Calaghan of the West Australian

newspaper obtained
quotes from industry sources in 1999, including Alinta Gas, ACA Research

and Telequity that
indicated that Internet was proving to be the cheapest alternative to

business with

“Every time a
traditional sales representative hops out of the car to see a client it costs
business about
$300,” he said.” When a customer visits a branch network that is about $25 to
$30. The same
transaction in a call centre costs about $4 to $8 and if the centre uses the

it is less than

I believe that
everyone realises the benefits of E-commerce Now we just have to educate the
population that there is a need to implement this immediately.


Conclusions Today.


The Government can not allow control of the new infrastructure to ever fall
into the hands of a single commercial entity – or any group of commercial entities that do not fairly represent delivery to 100% of the Australian population and consist of less than twenty Carriage Service Providers.

The Government needs to address the bush/remote requirements through enhanced ISM
spectrum allocation capable of servicing the unserviced 20% of the population –
who are currently fobbed off with unstable – and often unusable satellite connections.

Government is starting to listen. Senator Kate Lundy Hosted an Open Sphere session in Canberra that demonstrated the willingness of the current Government to actually listen to its constituents.

Thank-you Senator Lundy.

Perhaps there is hope for Australia to regain the “Lost Ecommerce Years” forced on us by a share price hungry previous Government.


i Unwired
now Unbelievable – User Comments about Unwired service quality

ii Analyst
slams ACA spectrum auction –
Abby Dinham, ZDNet Australia

19 August 2004 04:13 PM


iii The
Seventh Mass Media


iv 1788
London to
Glasgow Mail Coach established, taking four days.

Steam ships used for first time to carry mail.

13.8 Postal services: P288

chronologies Extract taken from United Kingdom Input-Output Analyses, 2006

with 2006 Blue Book and 2006 Pink Book

v [iii]

vi Wages
were nine shillings a week for an able bodied man
Herbert Brown who was Rector

of St
Lawrence from 1901 and went on to write the excellent histories of St Lawrence

on Sea in the 1920's



ix Callaghan,
R. (1999, 8 January). Customer Queries Keep Alinta Gas Humming.

Australian, (p. 30).

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