AUSTRALIA’S $2 billion government-funded broadband satellite program is on track to become hostage to Russia’s commercial and geopolitical interests in Asia after NBN Co rejected the option of paying less than $10 million for orbital slots ideal for its purposes. Russia is refusing to agree to the co-ordination of its satellite in the region despite three years of negotiation led by the Australian Communications and Media Authority (ACMA).

“The satellite world is a snake pit”It is not clear whether Russian intransigence in reaching an agreement is driven by the current Russian embargo on trade in certain Australian products or is just the normal game-playing the country is famous for in the satellite industry.

As one close observer of the industry said: “The satellite world is a snake pit.”

The same observer said the Russians are famous for playing hard ball when it comes to meeting their obligations under the rules and processes over seen by the International Telecommunications Union (ITU).

NBN Co’s broadband satellite program is arguably one of the most embarrassing commercial disasters ever to come out of a government-run body.

The problems occurred well before new chief executive Bill Morrow was installed but he is still dealing the appalling legacy of his predecessors.

Rural demand vastly underestimatedThe cost of the NBN’s fixed wireless and satellite services for 7.5 per cent of the population were under estimated by NBN Co by between $1 billion and $1.5 billion. The taxpayer-funded company failed to realise that if you offered rural residents a top quality broadband service at city prices the populace would grab it with both hands.

The cost of delivering a satellite broadband service to a household in rural Australia is about $10,000 each compared to a broadband connection cost in the city of less than $2000 each.

NBN Co underestimated the uptake of broadband services in the bush by about three to four times the real demand. It thought that out of about 850,000 customers only about three quarters would take up the service. Instead about 1 million households or 2 million people want the services.

The embarrassment does not stop there. Industry sources reckon the provisioning of the two long term satellites by NBN Co was done in such a way it cost at least $150 million more than necessary.

However, the debacle is worse when you consider the planning around acquiring the slots for the orbit of the satellites.

NBN Co was late in filing for its slots which meant it was stuck with a junior priority in the ITU filings. That includes being behind the Russians.

It did not have to be this way.

Australian company spurnedNBN Co could have pursued a straightforward commercial solution of negotiating with Australian company KaComm Communications to purchase its four orbital slots.

These filings were made in April 2009 as part of an attempt by KaComm chairman Gregory Clark and executive director Keith Goetsch to use their expertise in the satellite industry to make money from NBN Co’s broadband plan.

However, right from the very start of negotiations between KaComm and NBN Co, there was a problem. The NBN Co executives, who had less experience than Clark and Goetsch decided they would not deal with KaComm. The NBN Co strategy was to wait for KaComm’s filings with the ITU to expire in October 2015. . The basic rule is that operators who file to use slots first have priority to use those slots but must have a “bird” in the slot for 90 days to extend the rights.

The two NBN satellites will work on the Ka band, a high frequency spectrum particularly suited to telecommunications. They will cover the entire Australian mainland and islands through 101 dedicated ‘spot beams’.

NBN confirmed on Monday that it would not be dealing with KaComm despite eleventh hour efforts by Clark to get a deal done. He has even offered to sell his four slots at a price that covers his costs.

The main thing is that he was open to negotiation. Clark upset satellite staff at NBN Co by approaching Communications Minister Malcolm Turnbull. Clark was later told by an NBN Co staff member to stop interfering. “This whole period of negotiations and interaction with NBN over the past few years has been the worst experience of my business career,” says Clark.

Clark has an impressive CV having won many scientific awards and worked in senior positions at IBM and News Corp. He remains a confidante of Rupert Murdoch.

Clark says he is working on a plan with Boeing to put a satellite in his slots before the expiry date.

The national interestThe NBN Co management does not seem to understand that the KaComm slots are an asset of Australia. They ought to be purchased in the national interest.

The KaComm slots could be used for purposes well beyond the supply of broadband to households in rural areas. They could be used for Australia’s diplomatic posts in the region and disaster recovery at sea.

Even if the NBN Co cannot see the value of owning a scarce telecommunication resource that should grow in value over time, it ought to recognise that the price of the slots is equivalent to a very small insurance policy against the uncertainty of what the Russians might do.

There are real risks that the Russians will at some stage constrain the supply of services to Australia. However, to do so they would have to point a beam to Australia.

One possibility is the Russians will do a deal with Indonesia and beam services into Australia from that country.

Chanticleer was yesterday reassured by NBN Co and its expert regulatory adviser Henk Prins, that the Russian failure to agree the co-ordination of its Express satellite in the region was not going to be a problem.

“The NBN Co team met with the Russian operator in Geneva (November 2014) and concluded there are no technical reasons why formal coordination can’t be agreed between the parties,” NBN Co said in a statement.

“Further, the Russian administration has previously communicated via letter to the ACMA that they have no intention of operating over Australia. The territory of the Russian Federation is the exclusive service area of our EXPRESS-10KA satellite network.”

NBN chief executive, Bill Morrow ordered a review of the KaComm proposition to sell its slots to NBN Co. That review was undertaken by Prins who told Chanticleer that just because KaComm had filings did not mean they were worth anything.

He said it was true that technically the Russians could cause problems for Australia but that was highly unlikely.

Russian risksThese reassurances appear to be at odds with the statements made by NBN Co in the fixed wireless and satellite review published in May last year.

The report said: “The ACMA has strongly advised that NBN Co complete a key co-ordination agreement with this particular operator (Russian Satellite Communications Company, the main state operator of communications satellites) prior to launching NBN 1A.”

“NBN Co and the Russian Satellite Communications Company should be able to have both satellites operating in the orbital slot at 140° east, with an NBN Co satellite serving the southern hemisphere and the Russian satellites serving the northern hemisphere, but there is some outstanding risk.”

ACMA said that the the NBN Co should endeavour to complete co-ordination with the Russian Satellite Communications Company as soon as possible to eliminate the remaining uncertainty.

The Australian Financial Review approached ACMA and it did not try to play down the risks posed by the need to deal with Russia.

“When, as often happens, a satellite is brought into service before a coordination agreement can be reached with the holder of a potentially overlapping prior filing, the operator is required to accept the risk that it may have to constrain the operations of its satellite in future to protect the other service,” ACMA said.

It admitted that the KaComm filings would revert to the ITU if they lapse later this year.

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