Prime Minister Rudd announcing the deal between Telstra and the federal government.

Australia has taken the first step towards 100Mbps unlimited broadband service this weekend as an agreement was reached to decommission the country’s copper wire phone network, replacing it with fiber connections to 90 percent of Australian homes.

After months of heated negotiations between Telstra and the federal government, Telstra CEO David Thodey this morning joined Prime Minister Kevin Rudd at the podium to announce the $11 billion deal.  Telstra will agree to scrap its copper-wire phone system and make way for the federal government’s new fiber network.

Rudd claimed the deal would benefit everyone because it would permanently retire an obsolete network with easily-upgradable fiber, connected right to the home.  Under Rudd’s previously announced National Broadband Plan, the government would finance the construction of the fiber network and lease access to any provider, including Telstra, at wholesale pricing.

In addition to an $11 billion offer, Telstra is expected to keep the estimated $580 million the company could earn from recycling more than 70 million kilometers of copper phone wiring no longer needed.  Another $1 billion will be earned from real estate sales.  At least 3,000 telephone exchange offices are expected to be declared redundant after switching to the fiber network, bringing Telstra plenty of additional earnings as those properties are sold off.

“I can’t stress enough just how complex this certain negotiation has been, because we’ve had to look at commercial issues, what the future of the business would be, what the structure of the industry would be, but we have got to this position and we are pleased to have done so, because it does give us clarity, and that’s what this company needs,” Thodey said. “Firstly we’ve got to grow our share of the market, we’ve got to simplify this business to take the unnecessary complexity [out], and we are going to continue now to build and invest in building new products and services to work in an NBN world.”

The agreement gives NBN Company, the government-owned entity building the fiber network, access to Telstra’s outdoor facilities to house the fiber network, saving the government billions in construction costs.  Telstra has also agreed to purchase wholesale access to the new network and will also decommission its coaxial cable-based systems, moving customers to the new fiber facilities as built.

Telstra will continue to operate its wireless mobile network and satellite TV business independent of the government broadband project.  For Telstra, in return for giving up control of broadband, the company is also freed from its universal phone service obligations which required it to provide service to any Australian that asked.

Telstra shareholders liked what they saw as the stock soared in value earlier this morning, but Thodey urged some caution.

“We believe that this is an important milestone towards getting [the deal done], but I want to stress it’s only a milestone, because it’s a non-binding financial heads of agreement that sets us on a road to get to a definitive agreement over the next period,” Thodey said.

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/Network 10 Aus Broadband Deal 6-21-10.flv[/flv]

Network 10 covered the deal between Telstra and the federal government in its weekend news report.  (4 minutes)

Glenice Maclellan, Telstra's point person on broadband, has recently discovered Australians don't just want to browse the web and read e-mail on their broadband service.

Telstra, Australia’s largest telecommunications company, has responded to customers leaving their broadband service over its fraudband speeds and paltry usage caps by increasing both, but not nearly enough to change perceptions that Australian providers still serve up slow, overpriced and restrictive service.

Telstra’s CEO David Thodey, who replaced the oft-despised Sol Trujillo, told investors what every Australian contemplating broadband service already knows: “In some parts of the market we’ve gone too far out of line and we need to come back. We must focus on our core business and our customers, this is where we create value for shareholders. At its simplest, the next stage in Telstra’s long-term strategy is to focus on satisfying customers, invest in new capabilities, and drive growth in new businesses.”

Thodey’s approach is to do away with the company’s downright lousy “broadband” service in many rural areas of Australia.  More accurately called “fraudband,” there are still many Australians suffering with Telstra BigPond service that tops out at a ridiculously slow 256kbps.  And because company officials suspect you’ll even use that too much, they slapped a usage cap as low as 200 megabytes on the service, with a war crime overlimit fee of $0.15 per megabyte thereafter.  Your low price?  $27US a month.  For that.  But you can double your allowance to 400 megabytes for a mere $9US more per month.  Grab the bargain.

Effective December 1st, Telstra will move its rural customers to 1996-level broadband service, offering 1.5Mbps minimum to those doing their web surfing over DSL lines.  For those paying $27 a month, they’re increasing your usage allowance to a still-paltry 2 gigabytes per month, and leaving the $0.15/mb overlimit fee in place.  Most DSL customers stuck on these plans will be herded up to the $36 a month plan which is “generous” in comparison with a new download quota of 12 gigabytes per month and no overlimit fee.  Instead, once you hit your limit, they cut your speed to 64kbps for the rest of the month.

Oh but wait, there are some more gotchas:

• Unless you are bundling your molasses-slow Internet service with a phone line package that brings Telstra at least $81US per month in revenue, add $9 to these plan prices.  You wouldn’t want Telstra management to go home hungry, would you?
• Uploads are also a part of your usage allowance.
• Many of their plans lock you in with a 24-month service commitment.  They’ve got you right where they want you.

If you find Telstra’s Oliver Twistian-usage allowances leave you hungry for more, no worries.  Telstra will happily upgrade your service to a higher usage plan, with correspondingly higher prices, by the following day.  That’s good to know if Microsoft obliterated a good part of your usage allowance for the month with critical Windows updates.

Or you could always take your business elsewhere, as many budget conscious Australians have.  Thodey’s fear about out-of-touch broadband pricing is real when considering Telstra’s competitor iiNet offers 4GB (2GB peak/2GB off peak) for just about the same price Telstra charges for its $27 a month/200 megabyte plan.

The company has also recently discovered that Australians want to use their broadband service for more than just web browsing and e-mail.  That’s apparently news to Telstra management, who threw this into their PR push:

“Telstra’s new plans cater for the changing ways Australians use broadband for communications and entertainment at home.  Gone are the days when broadband was used only to check email or internet surf. Australian families now also use broadband to download videos, play online games, or check social networking sites all at the same time”. — Glenice Maclellan, the Acting Group Managing Director of the Consumer division, Telstra

Thanks, Glenice.  The only problem here is that Australians didn’t get to do those things much because of your rationed broadband plans which either overcharged them if they tried, or speed throttled them back to dial-up as a reminder not to be a naughty data hog.

Now, Australians can at least feed at the trough… for a little while.

Telstra offers other plans, which vary on whether you qualify for ADSL 1 service (original DSL) or live in an urban/suburban area upgraded for ADSL 2 or cable modem service.  All prices hereafter are in Australian dollars – $10AUD = $0.91US at time of writing):

New Broadband Pricing for full service fixed phone customers

Those prices are enough to give North American providers dreams of Money Parties in their heads forever.  Only Time Warner Cable came close with their infamous $150 unlimited usage plan they tried to stick customers with in several cities this past April.

That platinum-deluxe BigPond Liberty 200GB plan bundled with a TV package will cost you more than $4,560US over the life of the 24-month contract.

Australians continue to wait for a National Broadband Network plan that the government says should finally free Australians from a life of being told you have to spend more… a lot more, to save just a little from companies like Telstra.

A spoof on Telstra’s BigPond Internet Support Call Center (1 minute)

Until the National Broadband Plan is in place and additional capacity is brought online, Australians make do with usage limited broadband service from Brisbane to Perth.  With prices all over the map, choosing the right plan to minimize your exposure to Internet Overcharging schemes is more important than ever.

VoIP-Sol.com, an independent blog covering the global broadband market, took a look at several popular options and discovered some revealing findings (All prices in Australian dollars – $1AUD = $0.91US — Stated speeds are relative and reflect the maximum possible, not necessarily the actual):

The Fastest Broadband Plan in Australia
BigPond’s 30,000Kbps +400MB cable plan is the fastest available (that speed available in select areas of Melbourne and Sydney only — up to 17Mbps service elsewhere), but at a hefty price: $49.95 a month with a cap of 400 megabytes. Data past the cap is charged $0.15 per megabyte. BigPond will discount the monthly charge by $10 if it is bundled with a Telstra home phone line. This plan requires a monthly contract, and there is no peak time.

The Australian Broadband Plan With the Biggest Cap
iPrimus’s Big Kahuna and Dodo’s Rhodium plan both come with 200gb of service each month over ADSL. Dodo’s setup fee of $69.99, but the monthly charge is $10 a month cheaper than iPriumus at $69.95 a month, and an additional $10 is discounted for Dodo’s home phone customers. The Big Kahuna could go on the fastest list at 24,000Kbps, while Rhodium is a still impressive 20,000Kbps. (Keep in mind ADSL speeds vary considerably depending on how far away you are from the telephone company’s exchange office.)

Australia’s Cheapest Broadband Internet Plan
The Starter Plan from Netspace may seem like a bargain with speeds of 20,000kbps for only $9.95 a month, but the setup fee is a staggering $149.

Dodo Bronze is $19.90 a month, or $9.90 a month when bundled with one of their home phones, beating Netspace by five cents. However, this gives you a tiny download cap of 150mb, with an equally low download speed of 256kbps. Excess data is charged at $0.18 per megabyte, which even the most frugal user will probably reach. The Bronze plan also requires a twenty-four month contract.

Surprisingly, the next cheapest option is Optus’ Mobile Wireless Broadband. When included with mobile or home phone service, Optus charges $19.99 a month for cellular-based Internet. Like Dodo Bronze, the download speed is limited to 256Kbps, while downloads are capped at 1 GB. Most people who buy this plan will be more interested in the service’s convenience than its performance.

There are many other regional services available in different parts of the country with their own pricing and policies.  But nearly all share a usage cap combined with “peak” and “off-peak” usage pricing, designed to prod you into confining use of your highest bandwidth applications during off-peak hours (typically between midnight and noon).  Many providers give you a bonus usage allowance to use during off peak hours, often much higher than the peak usage allowance.  In Australia, providers don’t necessarily punish you with overlimit fees and penalties for exceeding your limit, they just turn the speed of your connection down… often way down (64kbps, slightly faster than dial-up, is common) once your limit is reached for the month.  Speeds return when a new billing period begins.

Australians complain about paltry usage caps with such regularity, the government has set about constructing better broadband infrastructure to improve service.  Private providers have dragged their feet, preferring slower upgrade paths and tamping down demand with usage limitations, reducing the need to invest in their networks.  Domestic online video services and other high bandwidth innovation is greatly stifled in the country because of punishing usage limits which make consumers fear using them.

With the expansion of international connectivity and a more robust domestic network, Australians look forward to the day they can see usage caps as a thing of their past.

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.

"PPC-1" - Pipe Network's new fiber link opens this week

Ongoing connectivity issues and lack of competition continue to leave Australians with expensive, slow, and usage-limited broadband service.

This week, Pipe Networks will make a small dent in improving international connectivity when it activates its new PPC-1 fiber link between Sydney and the U.S. territory of Guam in the Pacific. The project, first envisioned in December 2006, took nearly three years to complete at a cost of more than $175 million U.S. dollars, and has a design capacity of 1.92Tb/s run over two fiber pairs.

Telecommunications analyst Paul Budde said Pipe Networks, along with others “would help to reduce this problem and will therefore provide ISPs with better prices,” which was supposed to result in a lifting of Internet Overcharging schemes like usage caps.

Not so fast.

Broadband providers in Australia have taken notice of Pipe Networks’ new pipeline, but many have not lowered prices or removed usage caps.  The lack of competition has kept a price war from taking place.  Ovum senior telecommunications analyst David Kennedy told Australian IT that without a price incentive, a lot of customers, particularly those served by Optus and Telstra, are unlikely to switch providers.

ADSL2+ Speeds drop dramatically the further away you live from the phone company's switching office

One DSL provider in Australia, Internode, has made some changes to its service offerings in response to the new fiber link.  The Adelaide-based company has simplified some of its service plans, cut the price of small office/home office pricing by about $9 per month, and increased the paltry usage cap on its Easy Broadband plan from 30GB per month to 50GB per month.  Internode’s Easy Broadband charges $44 a month for DSL service at 1.5Mbps/256kbps,  or in areas upgraded to ADSL2+ service, up to 24Mbps/1Mbps.  Actual speed on the latter service is highly dependent on how far away you live from the telephone company local switching office.

Internode chief executive Pat Tapper doesn’t think PPC-1 will make a huge difference for his company.

Internode sells "data blocks" for consumers intending to exceed their allowance.

“In the whole scheme of things the PPC-1 circuit doesn’t represent a huge spend in terms of what it costs to run the network. It will change a little bit in terms of our overall cost but only a very small amount,” he said.

“What it does give us is the ability to deliver more capacity to customers in downloads.”

That means a larger usage cap, but not cheaper pricing.

Internode customers that exceed the cap can purchase additional usage blocks, at pricing starting at $2.20 per gigabyte.