Sol Trujillo, the former head of Telstra, was routinely depicted in the Aussie cartoon press in a sombrero reflecting his Mexican heritage

Yesterday’s Wall Street Journal Opinion page features a piece of nonsense from Holman Jenkins, Jr., one of the editorial writers for the paper, decrying Australia’s “Broadband Blunder” by not allowing Telstra, the dominant provider, free market means to define problems and create solutions in broadband.  The editorial carries a clear subtext for American policymakers — let the free market do it all and keep government out of it (unless they want to cut some checks with taxpayer money or other subsidies, of course).

Australia lacks America’s bottomless think-tank and K Street resources for publicizing policy differences. Its parliamentary government puts all the policy levers, including a ready resort to secrecy, in the ruling party’s hands. Australia is a small nation, with a small elite that tends to place limits on burn-the-bridges debate.

This may sound ideal to Americans, but the results aren’t always good, says Mr. Burgess. Australia, like America, has its “wingnuts,” he says, but they don’t get a hearing. “There’s no sharpening of issues. Policy ideas aren’t fully vetted.”

The [National Broadband Network] NBN, a tremendously awful idea, is a case in point. The government wants to spend $39 billion to deliver 100 megabits to every household in the next decade, without the slightest idea how it might be done commercially or whether customers, who already can get 21 megabits through wireless in most of the country, would be willing to support NBN’s huge costs.

Trujillo was reviled for increasing his own compensation package while presiding over massive cost-cutting layoffs

That’s a remarkable bit of news, for both Americans and Australians.  Jenkins comes right out and tells all of corporate America’s best K Street secrets.  Australia doesn’t have the corporate money-astroturf PR-influence machine that frames debates with a corporate point of view.  ‘Burn-the-bridges debate’ is the way Jenkins might characterize it, but burning actual facts and reality for astroturf fiction is more in keeping with reality.  On just about any issue, from energy deregulation to banking reform to last summer’s often-ridiculous health care debate melodrama filled with death panels, hiring a PR firm that can launder corporate-string-pulling-connections guarantees you can lie, distort, and obfuscate anything into something it’s not, in hopes of dispensing with it.  The Net Neutrality as Marxist Plot nonsense emanating from Americans for Prosperity and Glenn Beck is just the latest example of the broadband policy Distact-O-Matic in use.

American wingnuts not only get a hearing, they often get all of the attention, particularly in the television media.  The more outlandish and dramatic the video, the better.  Policy issues are never vetted at all when you start “sharpening of the issues” with accusations Mao Tse-tung is the founding father of Net Neutrality.

Australia’s NBN is hardly an example of government trying to compete with private industry.  In fact, it was the private industry which built the slow, incrementally upgraded, usage capped, and expensive network that misses large portions of the country which drove the government to consider doing what private industry simply refused to do – provide Australians a state of the art broadband platform.  It’s obvious the government doesn’t need to “do it commercially” with large profits and leveraging higher prices in non-competitive markets — they just need to see it gets done and paid for, recognizing Telstra and other providers will not spend the money to build it themselves because they don’t like the long term wait for that investment to be paid back.

Most Australians will also be surprised to learn they can obtain 21Mbps through wireless “in most of the country.”  In fact, reasonably priced broadband in Australia is much slower, and carries a small usage allowance.

Of course, it takes an unwonted faith in government to believe it will deliver the promised digital nirvana on-time, on-budget or at all. In the meantime, Telstra would have no incentive to invest in its own network, so Australia could end up with the worst of possible outcomes: neither a shiny new functioning government network nor an existing Telstra network that keeps pace with technology and customer demand.

Ah, the elusive “incentive to upgrade” reasoning.  The moving target of what represents appropriate incentive (extra fat profits, no competition, keeping costs low by rationing service) may work very nicely for interested shareholders but do little to advance the broadband platform either in Australia or the United States.  This debate is not new.  Decades earlier, power companies argued that rural areas didn’t need electrification because farmers wouldn’t use it (or afford it), or it was simply too expensive to wire for too few customers.  Citizens in both countries will have to impress on their government whether they consider broadband service a nice luxury to have or an essential utility that must be provided, even if it means bypassing the ‘100% free market’ approach that turns up their noses at rural residents or those deemed too poor to afford it.

Just because Jenkins claims Telstra keeps pace with technology and customer demand doesn’t make that reality.  Australians would argue both points, particularly comparing what they get for their money versus what we get in the United States for ours.

The rest of the piece is a glorification of Sol Trujillo, the controversial former head of Telstra, who has been compared with George W. Bush and Karl Rove for his combination of “I am the decider” confidence and Rove’s “take no prisoners” style of defending those decisions.  Jenkins suggests the source of the active dislike of Trujillo was his willingness to go personal in attacking Australian officials in speeches and press accounts.  But many more Australians would find fault with Trujillo’s very generous compensation package and benefits he and his associates earned even while the stock underperformed under his leadership, and with the sluggish, expensive, and capped state of Telstra’s broadband as he left.

Professor Rodney Tiffen

The Sydney Morning Herald ran a piece Friday morning that had absolutely nothing nice to say about the former leadership of Telstra, Australia’s “Private Telecom Monopoly.”

Sol Trujillo was the George W. Bush of telecommunications. For both, the American way was the only way. Being the biggest meant you did not have to do diplomacy, and both were better at starting wars than finishing them. Both used patronage and punishment to ensure a like-minded leadership group that made worse decisions more harmoniously.

Australians remain unimpressed with the tumbleweeds that routinely blow across the Land Down Under’s broadband superhighway — the result of a combination of failed government leadership, special-interest dominated public policies which put the interests of private companies ahead of their own citizens, and the predictable emergence of greedy telecommunications providers delivering the least possible service at the highest possible price for millions of Australians.

Rodney Tiffen, professor of government at the University of Sydney, calls out a succession of Australian governments which have repeatedly dropped the broadband ball, and have left the country with comparatively overpriced service with ludicrous Internet Overcharging schemes that punish citizens with usage caps, outrageous reductions in their broadband speeds or, worse, overlimit fees and penalties:

Australian consumers suffered particularly from the stringent caps placed on downloads and the high expense of exceeding the cap. While in nine of the countries no explicit caps were placed on broadband subscriptions, Australia was one of only four countries (with New Zealand, Canada and Belgium) where all survey offers included caps, and among these four was by far the most expensive when the caps were exceeded – an average of 11 cents per megabyte compared with 1 cent for the others.

Tiffen rejects the argument that Australians have to pay more because Australia has low population density.

“It should also be remembered Australia has a higher percentage of people living in large cities (defined as those with more than three-quarters of a million people) than any of the other countries (measured by the Organization for Economic Co-operation and Development),” Tiffen writes.

The key policy issue Tiffen identifies is: what is a natural monopoly and when does competition produce more dynamism and responsiveness to consumers? Since telecommunications reform came on to the public agenda about two decades ago, there had been a bipartisan failure to address this central question.

Tiffen wants Australia to recognize the mistakes America made dealing with its cable television industry — “replete with cases where a company controlling the delivery platform has favoured its own company’s channels over its competitors.”

“Indeed a private monopoly at a key gate-keeping point often leads to less competition in services than there would be with a publicly owned or regulated infrastructure,” Tiffen argues.

When One Giant ISP Goes Down, An Entire Country Will Notice

Millions of Australians were completely cut off from the global Internet Thursday when Telstra, Australia’s primary Internet Service Provider, lost connectivity to all websites hosted outside of the country.

The outage – which occurred between 7:43am and 8:50am – affected all Telstra home and business ADSL broadband, cable and mobile internet customers nationwide, the company said.

A Telstra spokesman said a planned change in the hardware that controls the ebb and flow of its international internet traffic was the cause of yesterday’s nationwide outage.  Telstra’s network service was restored by rolling back the change to its original settings and restarting the equipment.

“We’re continuing to work to understand what happened and why. What we understand from preliminary inquiries is that from 7.43am customers attempting to access websites hosted overseas, or Australian sites with content hosted overseas, received a network error,” the spokesman said.

The result was a torrent of phone calls from upset customers waiting on hold with Telstra customer service, assuming they got their call through, while sipping their morning coffee.

“We have commenced a detailed and thorough technical investigation into the incident. This may take some time to conduct to ensure we fully understand the issue and can put appropriate measures in place to maintain the integrity and operation of our network,” the spokesman said.

An investigation?  Matt in Sydney was bemused with the entire experience:  “I can’t believe the reported resolution was a restart. ‘Have you tried turning it off and on again? Is it plugged in?'”

Joshua Gans, an economics professor at Melbourne Business School, has a question.

Why are Australians still stuck with usage caps, which Gans notes are virtually non-existent around the rest of the world.

Writing for The Age, Gans notes that had the United States forced users into consumption limits and other usage-based broadband plans, online video sites like YouTube would likely have never started.  Gans called out Australian providers for usage pricing that has to be seen to be believed:

To an outsider, the Australian system seems very strange. Telstra boasts a basic package on its BigPond Cable Extreme network that, for $39.95 a month, gives 200 megabytes in usage. At Telstra’s boasted 30MB a second speeds, that amounts to a minute of high-quality video downloads. After that you pay 15¢ a megabyte. It is hard to imagine that being an option for consumers.

But even its Liberty plan, which costs $69.95 and offers 12GB a month – after which the extreme speed is slowed to the speeds of last century – only allows you 20 hours of video watching a month, provided you do nothing else. That’s about 45 minutes a night.

Gans also zeroes in on another theory why usage caps prevail — to protect incumbent cable and satellite providers’ video business models.  Australia’s largest Internet provider, Telstra, is also the majority stakeholder in Foxtel, Australia’s largest cable/satellite television provider.  Telstra is the equivalent of Bell in Canada or AT&T, before the 1980s “breakup.”  It dominates Australia’s television, mobile phone, wired phone, and broadband needs. It was privatized by the government under former Prime Minister John Howard.

Telstra is well positioned to control much of the Australian playing field competition is expected to compete on.  Competing broadband providers, particularly those using DSL, are confronted with installing their equipment in Telstra-owned phone exchanges, at Telstra pricing.  Telstra’s giant stake in Australia’s broadband also means they play a crucial role in Internet connectivity outside of the country, using undersea fiber cables to connect Australians with the rest of the global Internet.

With these types of ground rules, it’s no surprise Australia’s broadband experience is universally usage capped.  The limitations are so egregious, the Australian government launched a national broadband plan to vastly improve capacity and get the country higher in global broadband rankings.  It will take nearly eight years to complete the project.

For Gans, that’s not good enough.

We are told that the new management of Telstra is more open and ready to meet the challenges brought about by the national broadband network. The NBN will have the capacity to break through usage caps. But why wait eight years?

There is an opportunity for Telstra to demonstrate its new responsiveness and get rid of this anachronism. It could lift its Liberty plan to 100GB and likely face few additional costs if it charged 15¢ a gigabyte. It would send a strong signal to markets.

For North Americans, it’s another illustration that Re-education efforts from domestic providers pointing to Australia as a justification for Internet Overcharging is based on the false premise that customers don’t mind usage caps.  Even in the land down under, consumers want out from under Internet Overcharging’s high prices and limited service.

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A Telstra customer rants about Telstra’s inaccurate “usage meter” that resulted in $2,500 monthly broadband bills for this particular customer, and how the broadband provider holds all of the cards when they measure and bill for usage, all while attempting to hold customers to a two year contract. Viewer Warning: Strong profanity.

[Updated 1:00pm ET: Stop the Cap! reader Michael Chaney found a video interview done last fall with some Australian providers falling all over themselves to praise themselves for Internet Overcharging schemes, and suggest American providers learn from them how to get away with trying the same thing.]

The group managing director of Telstra (Australia), Justin Milne, wants you to know that the era of free love is over.  They are sick and tired of letting content producers like Ninemsn (a partnership between Australia’s Nine Network ((think ABC or CBS)) and Microsoft’s MSN) use their pipes for free to send those video clips to their customers.  It’s time to break out the checkbooks and start paying them for freeloading on their network.

In a commentary for ZDNet Australia, Milne equates Net Neutrality with greed and “economic self-interest dressed up as moral virtue.”  Pot to kettle, especially when he quotes Franklin Roosevelt:

Franklin Roosevelt said during the Great Depression that heedless self-interest reflected not only bad morals but bad economics too.  Seventy years on, his advice still rings true.

Yes it does, and Telstra is a perfect example of that in practice, offering dreadful broadband service with paltry limits on usage and heavy throttles on speed when one exceeds them, all for a substantial price.  Telstra’s own self-interest leaves a lot of Australians despising the provider and begging for alternatives.  The morality of a company that now wants content providers, with whom it has no business relationship, to pay them money to reach their customers, can be left to the reader’s determination.

This is a tune we’ve heard before.  AT&T’s former CEO Edward Whitacre was the guy who first lit the flame to the gas line of abusive provider tactics using generally the same language:

How do you think they’re going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it. So there’s going to have to be some mechanism for these people who use these pipes to pay for the portion they’re using. Why should they be allowed to use my pipes?  (11/07/05)

Justin Milne

After Whitacre was educated that providers already pay hosting fees, infrastructure and licensing costs, and provide the very stuff that drives consumers to sign up for AT&T’s broadband services (and pay them for it) in the first place, Whitacre did a full reversal three months later:

“Any provider that blocks access to content is inviting customers to find another provider. And that’s just bad business.” (3/21/06)

Milne follows in Whitacre’s earlier footsteps, except he wants to be paid by everyone.  His customers are already subjected to limits on usage, which have limited Australia’s multimedia online experience years behind most others, and now he wants to have the money he earns from Internet Overcharging -and- the right to limit content that reaches his customers to only those who pay Telstra for the right to deliver it:

“Some content providers such as ninemsn argue that Telstra should subsidise the cost of the ninemsn customers visiting their internet sites. We might also assume [they] would prefer petrol to be free for their cars, and Hayman Island would like air travel to the resort free,” Milne wrote.

“But Shell, Qantas and Woolworths do not give their services away for free. Just like BigPond and the rest of Australia’s ISPs, they need to charge their customers a fee so that over time their investment is recouped,” he said.

Of course, Shell, Qantas and Woolworths only charge once for their products and services.  They don’t install a toll booth on a road and claim that because a full petrol tank weighs more than a near-empty tank, there needs to be a surcharge toll.  Qantas doesn’t send people down the aisle on a flight with a collection plate demanding more money for your ticket because the plane was packed.  All of Australia’s ISPs charge their customers for providing broadband connectivity.  Telstra does as well.  The difference is that Telstra wants to charge its customers a fee and also charge the websites you choose to visit a “transport fee” on top of that.  Your bill as a customer doesn’t go down because of “cost sharing.”  Telstra’s profits simply go up.

Milne’s problem with Net Neutrality is its core principle that all legal data traveling across the net must be treated equally.  That means Telstra has no way to enforce their HissyFit.  In the absence of Net Neutrality, they can block, limit, or throttle those that refuse to pay them.

The cost of the infrastructure to support this traffic has been borne almost entirely by internet service providers, and not by the publishers. In Telstra’s case alone, the company has invested billions of dollars in the Next G mobile broadband network covering 99 per cent of Australian consumers, the HFC cable network in major cities and the extensive ADSL network.

Unfortunately there is no magic pudding, so this investment must be repaid by the beneficiaries of the internet — the users on the one hand, and the publishers who seek to make money from those users through advertising and subscriptions.

Milne almost suggests they did this out of the goodness of their heart, and their investment was not going to be paid back.  The fundamental reality is that subscribers to those services are Telstra’s customers and they pay for that service, such as it is.  That is where that investment will be recouped.  Demanding a company that has no business relationship with your company to pay up or else face the potential of being cut off is akin to extortion.

I offered Milne two alternative suggestions:

• Expand your network to create infrastructure suitable to meet the needs of your subscribers, who will sign on in greater numbers to your service.
• Create hosting platforms and services at attractive prices to content providers who will use your service to host their content (and pay you for actually doing something for them).

Barring that, this is nothing but a HissyFit from another provider looking for a payday.

Michael Chaney, one of our readers, discovered this video interview compilation done last fall by ZDNet.  Enjoy the Internet Overcharging excuse making, where the customer becomes the enemy, and the creativity to find new ways to charge more in without bounds.

“The attempt is being made certainly in the UK but also in the US to push that cost onto the content owner by saying, you pay, and we’ll prioritise your traffic,” he said. “[And] if you don’t pay, your traffic will be really crap.”

[flv width=”480″ height=”360″]http://www.phillipdampier.com/video/ZDNet Australia Providers 2008.flv[/flv]