The first part of the National Broadband Network spending will be backhaul connections, with six regions initially targeted. Backhaul doesn't directly bring faster Internet right to your door, so why is it important?
Since the announcement of the National Broadband Network as a private-public partnership back in April, there's been lots of speculation and lots of backroom negotiation, but very few concrete developments. Today's announcement of $250 million being spent on improving backhaul in six key regional areas represents the first real physical activity on building the NBN.
In an Internet context, backhaul refers to moving large aggregate volumes of data between locations. It doesn't refer to the connection between your house and the Internet, but between major data aggregation points like exchanges and overseas cables. But it can still impact heavily on the price you pay.
A typical Australian broadband connection will generally utilise ADSL, and the speeds you get offered will be determined by your distance from the nearest exchange and the type of equipment your ISP has installed in that exchange. Telstra generally controls access to exchanges, but is supposed to allow other ISPs to install their own equipment on reasonable terms, though in practice those terms have often been defined through lengthy regulatory battles. Many ISPs also purchase ADSL wholesale from Telstra or Optus.
Even assuming that you have a choice of ISPs, however, you won't necessarily have a wide choice of prices. ISPs also have to pay to transport data from exchanges back into the core of the network, and this is the process generally referred to as backhaul. This can be done using a variety of technologies (including microwave, DSL, carrier Ethernet, fibre and ATM). The technology itself isn't what matters, though — it's the price which carriers have to pay to send that aggregate data.
In much of Australia, the only available backhaul connection is owned and controlled by Telstra, meaning that it can effectively set the pricing. If those costs are essentially fixed for anyone offering an Internet connection in that area, then the chances of competition based on price are reduced. ISPs often complain that Telstra doesn't offer equitable or reasonable pricing; NBN pricing for backhaul will be fixed, so any provider in the area should (in theory) pay the same cost. At the same time (the theory goes) existing backhaul providers will adjust their pricing to remain in the game.
The six locations which have initially been singled out — Darwin in NT, South West Gippsland in Victoria , Emerald and Longreach in Queensland, Geraldton in WA, Broken Hill in NSW and Victor Harbor in SA — are all relatively large regional centres (and it's surely no coincidence that they're evenly spread between the states, save for Tasmania which has already been singled out for other investment plans). Yet despite that, competition for broadband services in those areas is relatively low, and the lack of backhaul is one possible reason. If ISPs have no choice about how they'll get data from a local exchange to the wider Internet, price competition becomes more difficult.
Or, as Minister for Broadband Senator Stephen Conroy put it: "Access to competitive backbone infrastructure on an open access, equivalent basis will allow retail broadband providers to expand further into regional areas." (The government has also heavily emphasised that there'll be further backhaul announcements, less other regional voters get grumpy.)
Will infrastructure competition make a practical difference to consumers? We won't know until construction is finished and the actual prices are set, but the early indicators are positive. iiNet estimates that it already has 3,500 customers in the six target regions who could receive cheaper prices if competition results in better backhaul fees.
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