Friday, 27 April 2012

NBN: Turnbull and 'inside the house' costs. Nope!

Malcolm Turnbull trotted this out and it really needs to be highlighted and responded to in and of itself:
it's is so fundamentally flawed as to be inconceivable for an informed person, let alone the expert commentator he'd like to portray himself as
From Malcolm Turnbull's "Comms Day" 2012 speech:
Another takeaway is that ‘inside the house’ costs for FTTP can mount and become a serious economic factor. These costs tend to fall over time, and vary from place to place, but in the UK ‘inside the house’ expenses have been estimated to be 20 per cent of total FTTP costs. 
The Telstra fibre rollout in South Brisbane likewise indicates this expense is likely to be material – Telstra this week confirmed industry reports that it is using up to a day of technician labour at each residential premise, adding up to $1000 to the cost of the cutover. 
It is not clear NBN Co has budgeted for this expense anywhere. If it has, it would be instructive for someone from NBN Co to explain where and how.
No Telco has ever been responsible for 'inside the home costs'.

Always, responsibility ends with the distribution frame or "first point". NBN Co will install a ONT [optical network terminator] on the outside of the house or somewhere like that, and (typically) provide these connectors to the customer:
  • 4-ethernet,
  • 1 phone and
  • 1 TV connector.
The ONT needs 240V provided to it and houses a battery that NBN Co pays for initially, then the customer pays for replacement batteries.

As well, 'inside the home', or LAN [local area network], is a common cost for ANY and ALL 'fast broadband' network solutions.
If you don't want to run cat 5/6, then put in a WiFi network or a Powerline network, or both. 

This is as daft as suggesting that Oil companies should've paid for the cost of converting old cars to ULP [unleaded petrol].
Or that a cable or satellite company should do more than provide a single socket inside the house.

I find it truly bizarre...
  • Why does he raise a common cost item?
    • It's an irrelevancy and a clear 'own goal' that reduces his credibility.
  • Why does he challenge NBN to provide costings/buget for consumer-only costs?
    • What the customer chooses to do/spend is irrelevant to any Telco, especially the NBN.
  • Why did he even think this was a question?
    • It seems no more than grasping at straws.

NBN: Why we need to run fibre into every home.

At 'Comms Day' 2012, Malcolm Turnbull asked: [more audio]
"Why do we need to run fibre into every home?"
We aren't building a network for 2010, but one able to easily handle the demands of 2020 and upgradeable as needed during its 25-30 year life.

There are 3 reasons we "need to run fibre into every home", beside the obvious [3G/4G networks are perfect for mobile devices and exactly wrong for fixed services]:
There is also a wild-card:
Just what will Apple come up with in 2013 to follow on from the iPhone in 2007 and iPad in 2010.
Will it be "TV done right" as Walter Isaacson implies, or something closer to the "Knowledge Navigator"? Either way, we're likely to see yet another bandwidth demand explosion driven by Apple.

For the Coalition to insist that "the market will build anything we need" is amazing in its ignorance, arrogance and self-delusion.

For Turnbull to suggest that a shared Fibre-to-the-Node solution is even possible with the incumbent Telcos is absurd and disingenuous, given his background owning an ISP.

Wireless networks aren't just a good, but perfect match for mobile devices, but worst-case for fixed-line.

The "single shared channel" of wireless networks:
  • suffer congestion so are not for "heavy lifting", but are good for light, intermittent use.
  • drop-outs, black-spots, link/equip failure (towers are lightning rods) cause outages and lower availability.
For this reason, wireless networks are 3-4 "nines" [1 in 1,000-10,000 availability] at best.
Compared to the 5-6 nines from PSTN and Fibre.

When you want it to absolutely work every time,  all the time and consistently "do what it says on the tin"  in terms of performance, you want a wireline service.

Fibre-to-the-Node is almost as reliable and available of Fibre-to-the-Premise because there is an extra interface in there: fibre to copper.
There's the extra xDSL equipment for copper, the extra terminations and cable patches, higher intra-cable interference and, more subtly, the additional damage and service outage risk to node and CPE (Customer Premises Equipment) from lightning strikes. 1 km long wires, even underground, are great aerials. They'll capture a nearby strike and zip a few thousand volts up to either end. Something optical fibre is immune from...

NBN and the impact of Australian Telco's Business Practices.


Australian Telcos aren't just uncooperative, their behaviours are pernicious, obstructive and often perversely self-injurious. This (and the GFC) is why Telstra's share price fell around three times pre-NBN, and has recovered over 10% in the short time since the NBN arrangement has been completed.

There are 4 incontestable examples of this:
  • Telstra/Optus cable rollout.
  • ISDN only as a 'premium service'.
  • ADSL 1 (ACCC intervention), ADSL 2 turn-on and ADSL 2 DSLAMs & ULL (non) churning.
  • Mobile roaming.
The massive and predictable waste of money caused by Telstra purposefully overbuilding the Optus network, even as they deployed, was sheer bloody-minded behaviour. When they'd beaten Optus to a standstill they proved that to "queer the pitch" (prevent others from 'scoring') was their only objective by never completing their own cable network.

Telstra had the resources and capability to finish their roll-out to 85-90% of the population, thereby laying the foundations for a viable Australian Cable TV Industry. Their bloody-mindedness destroyed a whole industry - we know what should have been from the businesses in the rest of the world. The critical enabler, sufficient penetration of a distribution network, was deliberately prevented by Telstra.

Presumably their interest in Foxtel was also along the same lines, deny competitors access to necessary resources rather than exploit those resources themselves. [Following part of the Accounting definition of 'control' - the ability to deny others access to a resource.]

ISDN was technically superior and cheaper/easier to deploy/operate and hence much more profitable. It also used existing customer cable-plant much more efficiently, avoiding massive, costly plant upgrades. But despite what even the USA did with residential ISDN, Telstra always priced ISDN as a 'premium service', denying themselves access to newer technologies solely to preserve PSTN profits and keep out competitors who might've used it to fuel a broadband Internet and a slew of new
services. Despite years of this "protectionism", revenues and profits from the PSTN network went into decline around 5 years ago.

It needed the intervention of the ACCC to set wholesale ADSL-1 pricing to sane levels. Then it's take-up exploded and fuelled the broadband Internet in Australia.
It took Telstra years to remove their arbitrary speed-cap of 1.5Mbps on ADSL-1, allowing those whose lines were good enough, up to 8Mbps. There was never a technical reason for this, and in economics terms, Telstra left a lot on money on the table by not providing higher speeds at a premium as soon as technically possible.

By then, Telstra had deployed/upgraded all its DSLAMs to be ADSL-2 capable, with a maximum speed of 16-24Mbps, again if you lived close to the exchange, not for those 8km away.
But Telstra would not turn it on, forcing competitors to deploy their own ADSL-2 DSLAMs, unnecessarily replicating the Telstra network, even though the same cable-plant and exchange buildings were used by everyone. Rolling out 4-5 parallel networks into ~1200 exchanges was slow, expensive and crippling for all but the largest operators. Not the least, causing intense competition for the services of installation contractors.

When competitors finally deployed their own ADSL-2 DSLAMs, Telstra would not make ADSL-2 available to customers on an exchange until competitors had rolled DSLAMs into those exchanges. Sheerly perverse economically and totally against the customer interests and wishes.

Having forced competitors to multiply overbuild an effective and efficient (and upgradeable!) ADSL network, Telstra then used the opportunity to deny customers "fast churn", using the fiction of the ULL. Customers could be transferred to another ISP's ADSL-2 network with a single phone call or email. Undoing this became onerous and extremely lengthy - simply because Telstra had refused to permit what had worked transparently and brilliantly for customers for years on ADSL-1.

Finally, our many times overbuilt Mobile networks.

There is no technical reason Australia doesn't still have a single, shared mobile phone infrastructure, especially for less used network areas, exactly as it started with the "Gen 1" (analogue) mobile phone
network in the late 1980's.

Since GSM/CDMA (G2 digital) Telstra and all the mobile switching carriers have overbuilt each other with completely parallel networks, often on the same towers. There is no way this is efficient or effective for the carriers and carries a huge economic cost for consumers and the country - and unnecessarily gives us all a maximum cost, worst-performance service with limited coverage.

In both the USA and Europe, a fundamental digital network feature, "roaming", is supported by carriers. It's acknowledged that no carrier has the resources or desire to build their network everywhere. Carriers willingly sign roaming agreements with each other. They cooperate, because it is in their own best interests, and possibly that of their customers too.

The Fibre-to-the-Node network was never going to happen while Telstra owned the last-mile.
The Rudd/Gillard gift to the opposition is buying back what Howard sold-off: the shared distribution network.

Given the long-term behaviour of all Australian Telcos, we were never going to get a Fibre-based consumer network, FttN or FttH, until Telstra could no longer avoid it.

In light of long entrenched and well-known business practices, selling Telstra as a vertically integrated company was massively unwise and exactly contrary to the National Interest.

With the perverse Business Practices of all Telcos, not technical or cost reasons, a single wholesale/backbone network is necessary in Australia.

This corporate behaviour wouldn't be accepted in a kindergarden and is far beyond the simple "doesn't play well with others".

Addenda 17-May-2012: Somewhere in late April 2011, just before the June-2011 agreement with the Federal Government, Telstra share prices broke away from the ASX200. The market is voting with their wallets that Telstra is now a competitive enterprise with a strong future, including real growth. Is that just the influence of the "structural separation", the selling/leasing of the residential copper network, or the new co-operative CEO, David Thodey, or both? I've no idea, but the shares are performing very well...

NBN Internet traffic drivers: STORAGE


Since IBM introduced the first disk (5MB, RAMAC) in 1956, demand for storage has grown relentlessly, as demonstrated by yearly total disk sales. Disk Vendors have collapsed to 2+1 as we enter the end-game.

Storage drives demand for bandwidth, both for data exchange/transfer and backups. Bandwidth demand will track storage sold, lagged by 1-3 years.
The proliferation of smartphones with video has driven the explosion of content on social media, and You-tube's "60 hours of video uploaded every minute" is only set to get higher.

By 2020, the last 10-fold scale-up of disk drives will be complete with 3.5" drives maxxing at 20-40TB: 1-10,000 hrs video [or for 'action' HD, ~500 hours with MPEG-4 variable encoding/bitrates.]
Flash is also in its last 10-fold scale-up and starting to suffer the same scaling problems that began in 2004/5 for DRAM. There are at least 3 candidate technologies to replace Flash and fuel further growth.

The bandwidth driver for domestic Internet will be driven by upload speed (currently 1-40Mbps), not the quote headline rate of '100Mbps' for download.

This has 3 components:
  • file backups,
  • content sharing and
  • real-time low-latency access (telephony, video calling and gaming, ...).
At the mid-range 5Mbps uplink, video uploads will only be 2-3 times faster than their record rate, but only if the link is not otherwise engaged in things like Skype and gaming.

As families realise they've moved to entirely digital records of their lives and that disks fail and/or lose data unpredictably, they will start to subscribe to Digital Preservation services:
every day they will automatically backup masses of documents, images and video to "the Cloud".
Because of the shared uplinks of the 'PON' [Passive Optical Network], even this promised line-access-rate will rarely be achieved. PON Congestion during busy hours will be considerable - exactly the same as the Cable TV (HFC) networks suffer now. This is on top of the ISP's 30-100 times over-subscription rates.

By 2020, there will be huge demand for Gigabit PON to be enabled. Not for the download speed, but for the 50-400Mbit/sec upload speed. As more people opt for the higher upload-rate plans, the "last mile" of the network, the most expensive part to change, will become more stressed.

Simplistic analyses based on "raw access speed" usually contain another two major flaws:
  • latency (round-trip delay) and jitter are far more critical for real-time services than raw throughput.
  • utility networks need to cater for peak demand, not average demand.
The lesson from the electricity networks is clear.
While homes on average consume under 1kW (20kW-hrs/day) during busy hour" demand rises to 3-5 times that, with instantaneous household consumption 10-20 times the average. Consumers will pay a premium for just 10-hours/week of higher-speed uploads.

For home "power users", Petabyte storage (1 Million Gigabytes) will be within reach well before 2020 - technically and financially. Their needs will drive the industry, just as Gamers and overclockers, not
businesses, have driven PC development since 2005.

This is without considering growth in low-latency interactive services like geo-data and mapping/overlay applications: grown-up versions of Google Earth. "Augmented Reality" devices and games are already being sold - they take latency and bandwidth needs to whole new levels.

The on-going revolutions in use and demand caused by the iPhone in 2007 and iPad in 2010 should alert any planners, especially those doing networks, to the inevitable:
What you don't see will hurt you.
The only constant we've seen in the Internet since the web arrived in 1991 is exponential growth, akin to Moore's Law for CPU's. There is still no sign of it stopping, just easing down to a mere 12-month
doubling period.

The NBN and defending against Cyber warfare attacks.

CYBER-WARFARE and the Australian NBN.

We know from "Stuxnet" that Nation States are actively building and deploying Cyber warfare tools, applying them to National Security concerns and running them as Military, not technical, operations. This includes accurate reconnaissance and network topology and vulnerability mapping. The worst case is that attackers will gain access to the network control tools and infrastructure.

Recent coverage suggests that Obama denied a US Military request to launch a cyber attack on Syria's infrastructure during the recent 'troubles'.

From the "slammer" worm, we know that any Cyber warfare attack will be fully developed within 3 minutes, and any attack will be launched at the worst possible time for defenders, possibly accompanied by physical distractions.

Recovery from "munitions grade" worm/malware compromise will be long and expensive. Experience is that malware infections is as damaging to businesses as a fire: Within 12 months of a fire, 80-90% of small businesses fail.

We've no idea of what the impact and cost will be if major Government I.T. infrastructure is compromised: ATO, Finance, Centrelink and Medicare (and with e-Health, the PCEHR).

Never mind State Govt. Education, Hospitals and Police.
Will Banks and the financial system, including Superannuation companies, be immune??? Obviously, some will go down.

If, like the destruction of all clients (4800!) data at "Distribute IT" in 2011, some "preparatory work" is done by the attackers, not only will "business as usual" not be possible for the week after an attack, many businesses will lose all their data - including backups.

Saying, "but nobody would attack us" is pure wishful thinking.
Nobody may ever intend to attack us, but as the Internet's first worm in 1988 showed (the "morris worm"), the Internet is a single thing and it's really easy to mess up your first attack, with no way back.

Morris had been raised with computers (at Bell Labs) with his father becoming the Computer Security advisor for the NSA. He had talent, experience and great knowledge - and even then his experiment escaped from his control. Australia will be most likely be "collateral damage", not a prime target unless there are real wars over resources and clean water.

DSD already has a Network Security monitoring facility and at some point, as a critical National Security measure, it will have to be upgraded to defend against a Cyber warfare attack, for Government and all other users.

This requires:
  • fully automatic responses, opening us to disruption by false attack detection, and
  • full coverage of the whole Australian Internet.
    • The Internet is a single thing, protection is "all or nothing".
Fortunately, while detection might be a little difficult, first-response protection is fast and simple:
pull the plug and put known infected machines into quarantine.
Next, identify and clean up the damage piece by piece. Whilst some of this can be automated and be performed within the network, compromised systems will need to be scrapped or physically visited and rebuilt. The economics seems odd, but when low-end machines are ~$500 and casual hourly service rates from tier-1/2 companies are $150-$250/hr, it's cheaper to supply a new, clean machine and remove/destroy the compromised hard-drive. The alternative is for householders to take their machines to a "clean and restore" site that may take a month or two to fix their machine.

Without a single shared "wholesale" infrastructure, ie. in the current highly variable anarchic ISP arrangement, not only is this necessary protection a hard problem, it is impossible. The ability for the
authorised protection authority to, in real-time, disconnect or move any identified system into a quarantine area with a single system, is a critical feature only available on the NBN.

An attacker only needs one breach, just like a dam, dyke or flood-levy only needs to spring one leak to fail completely, often with devastating speed.

Careful, patient and capable attackers will construct their beachheads well ahead of time and be completely undetected. It's a given that our current "anything goes" Internet design is indefensible.

Patient, capable and determined attackers will still be able to wreak havoc on the Internet within Australia even with the NBN with long-running stealth attacks and multiple beachheads, but with a uniform, consistent, universal network monitoring, management and control system, DSD (or whomever) stands a chance of limiting an attack. Without a single, real-time and automatic detection/response system, we have no chance of defending ourselves.

Wednesday, 18 April 2012

The NBN as an Essential Strategic Defence for Cyber-warfare.

Whilst reading this piece today I 'had a thought'.
online",  Nick Hopkins,, Monday 16 April 2012 15.00 BST
One argument in support of the NBN I've not heard is about Security, but not the "how to keep your bank account and credit card safe" kind - the usual direct theft or Identity Fraud talked about at Cyber-Security conferences.

The National Security kind that interest the Intelligence agencies and Military, a.k.a. "Cyber-warfare".

This is as far removed from normal Cyber-security as guarding bank vaults is from fighting a war. Attack, and hence Defence, is taken to a whole new level: because the resources employed and what is at stake is taken to a whole new level.

The Y2K debacle/non-event conclusively demonstrated a number of things, one of which was Federal Government "front office" functions (normal day-to-day tasks) were completely dependent on I.T. and the 'Net. Their dependence has only become more embedded and ubiquitous since then. [FeGovt "back office" functions were, like Banking, completely dependent on I.T. by around 1990-1995. Widespread automation started 1955-1960.]

The Nick Hopkins piece takes this one step further, the militarisation of cyberspace attacks, with all the attendant organisation, funding, talent, 'hardware' and strategies - including reconnaissance, stealth incursions and long-term, low-visibility high-impact campaigns where patience is the key. One to Five year operation lifetimes are not unthinkable.

The Australian equivalent of the NSA, DSD (Defence Signals Directorate) already takes the possibility of Cyber-warfare quite seriously with its "CSOC – Cyber Security Operations Centre".

The guy who detected and defeated the first known "Denial of Service" (DoS) attack, Bill Cheswick, later started "The Internet Mapping Project" in mid-1998 as an aide in controlling these attacks.
The first element of which is, "What link(s) are they coming at us from?". [The current version is a Distributed Denial of Service (DDoS) attack, where 'zombies', ordinary PC's infected with malware, are controlled in real-time in a "BotNet" (robot network).]
Ideally, you'd also like to be able to identify all the originating machines so they could be potentially isolated.

So why are the new capabilities of the NBN so important to National Security?

Because of its implementation: 802.1ad, a.k.a. "QinQ" or Stacked VLAN's (Virtual Local Area Networks).  VLANs on the NBN Co site: 2010 consultations, Access Seeker Certification.
  • Unlike the uneven, disparate designs and capabilities of existing ADSL and Cable networks, the NBN gives us a single network that has designed in from day-zero, sufficient security capabilities.
  • Limited interconnection points (121) allow common event detection and reaction at realistic costs and complexity.
  • The Stacked VLAN approach of the NBN allows high-speed traffic analysis to be performed without inspecting the content. Bytes, and potentially traffic flows, may be counted, but information privacy is respected. Sudden changes in traffic volumes and targets are indicative of BotNet attacks.
  • ISP's can elect to drop all traffic from suspect links and sources.
  • Co-operating ISP's can automatically, and in real-time, put all identified members of a BotNet into a quarantine VLAN, to which the CSOC would have special access.
  • Because there will be a small number of very well identified and controlled international links into and out of Australia, we can selectively "pull the plug" on overseas DDoS or BotNet attacks.
    • Because every link has two ends, and both parties must trust each other, one option is to drop attack packets before they get onto the link into Australia (or outbound link for attacks originating in Australia), preventing link congestion. This requires one trusted, controlling authority in Australia and cooperation agreements with far-end operators to facilitate secure remote commands.
    • More subtly, DSD might direct all identified attack traffic into a set of HoneyPot VLAN's: it will look to the attackers that their attack is succeeding, while they are just playing with a set of Virtual Machines at the CSOC. This comes at the cost of congesting the international links. 
  • The NBN allows one consolidated and co-ordinated set of defences, no "market driven" scheme allows this. It isn't an issue of cost, complexity or convenience, it is entirely about being able to defend ourselves at all from Cyber-warfare attacks.
What may not be clear is the speed at which attacks will originate and propagate in Cyber-warfare, and hence the importance of real-time co-ordinated defences. From a 2003 piece on the "Slammer" worm:
... the number of infected machines doubled roughly every 8.5 seconds, the study found. This is more than 250 times faster than Code Red, which hit in mid-2001 and had a doubling time of 37 minutes, according to the report. The worm hit its full scanning rate of around 55 million scans per second at around three minutes after the attack began at roughly 05:30 GMT on Saturday.
I don't have figures to hand, but network speed/capacity, as well as size of BotNets, has increased 100-fold or more in the intervening decade.
What everyone should understand is "Internet Time". The rate of increase (doubling time) of capacity, endpoints and "events" (or attacks) is measured in weeks and months. 12 months from inception, some new technique or attack vector will have completely saturated the Internet. With the advent of Internet connected smartphones and tablets, the number of new devices connecting has accelerated another 10-fold.

At the 3-minute mark, the Cyber-warfare event is pretty much won or lost. Defences have to be both automatic and high-speed. [Hence there will be false positives when defences are accidentally or deliberately triggered. This is an unavoidable and inevitable cost of good defences.] We no longer have the option of "turning off the Internet", nor even can we just "unplug the problem link".

As well, because the attacker can select their timing, they will choose the worst time for the defenders. If somehow they gain Intelligence (remember this is military in nature, not just a bunch of techno-crims) about even the shortest of times critical controls are unmanned or incapacitated, that's when they'll go in. You wouldn't expect less from highly trained, success-focussed professionals.

The other issue is the degree-of-coverage.
With a consolidated infrastructure, you have the possibility of complete coverage because its physically possible and economically feasible to have a single control network with complete coverage originating from the authorised defence organisation.

With the anarchic, decentralised free-for-all "market-place" model we have now, this uniformly high-standard of defence and control, guaranteed across the whole system, is impossible. At the very best it is an N2 problem, but more likely the far larger N! (N-combinatnorial). This scale is completely unmanageable and uncontrollable.

Complete coverage is needed for any large-scale Internet defence system.
It's exactly like a dam or flood levy: you only need one undetected breach and the whole asset is quickly lost.

With the militarisation of the Internet, not having the NBN compromises National Security in the immediate future. Any person or organisation that claims otherwise doesn't understand the problem. Any political group not supporting the full NBN is deliberately sacrificing our security for short-term political gains. [I'd personally be more comfortable with a faster implementation schedule as well. More costly, but safety arrives sooner.]

Wide-scale coordinated Cyber-attack isn't a possibility, it is a certainty, the only uncertainty is the timing. We can choose to be prepared, or not.

The outcomes of ineffective defences will not be pleasant. I'm sure there must be Military or Intelligence briefings that describe the results in awful detail. They won't be for the feint of heart.

Friday, 6 April 2012

The NBN we had to have, and the one we'll likely get.

Yesterday I read Robert Gottliebsen's, "Who wants a poor man's NBN?" and thought, "Am I the only person who remembers why we had to have the NBN?"

We got the NBN for a number of reasons, few of them necessary or good, in my opinion:

  • At the end of 2008, Kevin Rudd implemented a three-part Economic plan to shore-up Australia in the face of the Global Financial Crisis (GFC).
    • Phase 3 of Rudd's recovery plan was long-term infrastructure developments. Like ports and the NBN.
    • It has to be remembered that:
      • the Australian economy is still weak, becoming obviously "3 speed".
      • Phase 3 of the Rudd/Swan plan was big investments to support the economy long after the impact of the first two phases had worn-off.
  • Rudd and Conroy had issued a tender for "Fibre to the Node", expected to be ~$5B.
    • Telstra offered a 1-page response, although it had prepared an extensive response internally.
    • The Rudd Government realised that while it could build to the Node, it couldn't connect to the Premises. Telstra owned the copper reticulation network and had been aggressively adversarial for some time.
    • The only options for the Rudd Government to complete a FTN rollout were:
      • nationalise Telstra's reticulation network, at huge cost and the subject of many years of litigation from Telstra, shareholders and others, or
      • Side-step Telstra and build a new reticulation network of its own. So NBN Co was born.
  • Telstra, the obvious company to build a FTTP network of its own, had never done nor planned it:
    • Is judged as poorly managed by the Stock Market. Shares peaked at $8.50 (early 2000's), falling long before the "dot bust" and the GFC, and now hover around $3.00-$3.30. They provide good dividends, but burnt such a large number of first-time small investors, that the Howard Government felt compelled to soften the blow.
    • could've added empty conduit to every piece of trench work done since their 1995 announcement of "Fibre to the Kerb" in the new ACT township of Gungahlin, at close to zero marginal cost.
      • The cost to Telstra to install an NBN competitor-network, if they'd had empty conduit, would've been "small" ($1-5B). With a fractured market, the NBN would've suffered the same fate as the Optus Cable TV network: economic ruin and oblivion.
      • This would've snookered the Rudd Government and forced them to deal with Telstra on very favourable terms.
    • Telstra "Doesn't play nice with others":
      • Telstra has never entered into roaming agreements with other Mobile carriers. This sharing of network infrastructure is the norm in Europe and the USA. Forcing other carriers to needlessly duplicate whole networks multiple-times is economic insanity.
      • Witness that it took a ruling by the ACCC for Telstra to open up the ADSL-1 network to other ISP's.
      • How Telstra forced all competing ISP's to install their own, duplicate ADSL-2 networks, when they already had a perfect working model and were upgrading their own DSLAM's.
      • How Telstra refused to activate ADSL-2 in exchanges where there was no competition.
      •  witness the intentional duplication of Cable TV rollout in opposition to Optus/SingTel. Australia, the nation and consumers, got half a network when Telstra duplicated the Optus rollout, and each company was unable to achieve sufficient market penetration or consumer take-up to
  • When the Howard Government floated the idea to sell Telstra, there was a massive outcry from the Telecoms profession, not against the sale, but selling the three parts together:
    • long-haul and backbone network,
    • customer reticulation network, and
    • retail network and sales.
    Australia is a very different Telecoms market. It is relatively small with concentrated pockets of population in the midst of vast tracts of effectively empty land.
    • There is only room for one national Telecoms infrastructure player.
    • This allows competitors to efficiently deliver services to nearly all the population and for the Government to implement "social equity" policies by funding uneconomic portions of the network.
    • With one dominant, but hostile, ex-monopoly player, no new entrant and initiative can succeed economically now without Government support, and usually legislation.
  • The shortcomings of this decision by the Howard Government was demonstrated by:
    • the failure of a fully-privatised Telstra on the Stock Market, and
    • the "Structural Separation" bill that the Gillard Government has had to enact to allow NBN Co to acquire enough of the Telstra reticulation network.
The Liberal party deliberately created the monster that became the fully-privatised vertically-integrated Telstra, when it had no need to and against united expert opinion.

As a nation and a collective of consumers, we've had to pay again and again for this decision in:
  • more expensive standard services,
  • less competition on standard services, 
  • massive structural economic inefficiencies, and
  • considerably less innovation in products and services.
Yet not only the Liberal/National Coalition gotten away consequence-free with this massive stuff-up, but has been able to beat-up on the ALP for envisioning and attempting to implement the largest National Infrastructure Reform since the Snowy Mountains Hydro Scheme, sixty years ago.

Personally, I think this says more about the ability of current ALP leaders and strategists than anything else. I'm not sure Keating, Hawke and Whitlam would've been at such a loss.

Who wants a poor man's NBN?
Robert Gottliebsen
Published 7:50 AM, 5 Apr 2012

Let me start my Easter commentary with a strange message – Hobart and Launceston could be set to be boom cities. A lot of people, including me, may have lost value in their house this week, but few recognised it.

This is the backdrop to an intense house-to-house political debate, which is looming in the next 20 months or so leading up to the next election, as the NBN takes on the nature of an entitlement for important segments of the community.

In Australia we are actually going to have two community-wide debates before the next election. Both will play a big role in shaping the nation. The second debate will be about carbon, which I discussed
yesterday (The carbon revolt, April 4).

I will return to the reaction to my carbon commentary later.

To date the NBN debate has been about the cost; whether it was necessary and issues related to Telstra. Telstra is settled but the first two issues are still live. This week’s KGB interview with NBN Co chief Mike Quigley shows that now he is actually rolling out the broadband network, Quigley is going to be a formidable advocate of the project.

The internet has enabled people like me to avoid the drudgery of commuting to a city each morning. The NBN will extend that privilege to a much wider group of people because it enables video telephone as a matter of routine and can transfer much more data more quickly than
current connections.


Thursday, 5 April 2012

Smart-Grids and Carbon Trading: Enough for an economic Negawatt scheme?

Can the Smart-Grid and Carbon Trading create a new, economically viable marketplace in saving power?

In 1997, Amory B. Lovins co-authored a book with a radical new idea to address the Energy Crisis and our Environmental problems (now it might be "Climate Change"):
the negawatt negative watts of power consumed by creating lower demand through more efficient power use.
It is still much cheaper to "save a watt" than for a Power Generator to "build a watt", and the marginal cost of production and distribution is zero to the Generator. The consumer still has to maintain and replace their infrastructure investment.

So why hasn't the negawatt market happened? What's different now that it could work?

There are perverse economic incentives at work that mean no Utility Provider, especially Power Generators, will willingly invest in reducing demand:
Less demand is less income, which wipes out profits and threatens the company.
This is because the billing model is not based on direct production costs, which are dominated by the costs of fixed capital, not the marginal cost of production. Fixed retail electricity tariffs are 3-10 times higher than the variable prices Power Generators receive from the market. Part of this gap are the costs of the network and distribution.

Previously I've suggested three ways the smart-grid could be used to leverage known, proven technologies in domestic and small commercial consumers:
  • On-site Tri-generation (power, heating, cooling) from natural gas,
  • Small scale Heat Storage Air Conditioning, and
  • In-network battery storage for peak-loads.
Lovins negawatt proposal was that large-energy users (companies) should install energy-saving solutions in domestic and commercial premises (like compact fluros, 'super-windows' or improved insulation).

Somehow, the unused energy would be credited, by the Power Generator, back to the large-energy users. But no mention was made of how to bill consumers or that they paid for the benefit at all. They just used less power and enjoyed the savings, without cost.

The idea is based on a profound truth, but isn't economically realistic because of the disconnect between the owners of capital, the investors, and the parties receiving the benefits: the consumers and Power Generators.

Because those unmeasured benefits are hard to quantify, just what is an investment worth?

In Queensland, there is a very large lump of capital (~$1B) that is used for just 35 hrs (3.5 days) a year. It makes for hugely expensive power and inefficient investment. Economically, you'd choose to do almost anything else.

This is a direct outcome of the social contract electricity consumers have with all utility suppliers:
Give me what I want, when I want it, where I want it for a fixed price.
Wow betide you if you run out of capacity.
It's a contract that is well past its use-by for all utilities. We, as retail consumers, pay a lot for this privilege.

With our roads, we don't demand super-highways everywhere, we understand that demand and supply are related. That a little used side-road and a major highway aren't going to be the same standard. Public roads have their own problems: only toll-roads actually directly charge the user. Everywhere else, roads appear to be "Free Goods", mysteriously paid for in an opaque, disconnected manner unrelated to individual benefit or infrastructure impact. Politics determine funding and priorities, giving a far from optimal or rational allocation of resources: some of us have nightmare daily commutes, others love what the system does for them.

When electricity was first reticulated, houses often had one just one power-point in the kitchen along with lighting (60-100W globes, one per room). Household consumption was 1-2 kwHr/day (guess), not the 12-20kwHr/day now.

I think there's a solution if you look at the four stakeholders:
  • Regulators. They can set tariffs that can be charged.
  • Power Generators, possibly also Power Distributors.
  • Consumers of Power.
  • Investors looking for returns. Even Government supported schemes like the Solar subsidies
With a Carbon Credits and Trading scheme about to come into force in Australia, the Power Generators get a double economic benefit for every Kilowatt of generation capacity they don't need:
  • the saved investment (less capital demand == lower costs)
  • the surplus carbon credits freed up. ($23/tonne)
Here's the scheme:
Same as Lovins, Owners of Capital pay for domestic/commercial users to become more energy efficient or be able to move power consumption to "off-peak" (power storage or A/C units storing heat overnight).
There are two different financing options possible:
  • direct Consumer/Investor repayments, perhaps as part of the utility bill.
  • modified tariffs for all consumers, not just those in the scheme.
Direct repayment scheme:
  • No regulator interaction, no modification to supply tariffs.
  • Because of the Power Generator benefits (reduced future investment, carbon credits), they need to make co-payments to the Investors, as well as the consumers.
  • What may be $3,000 of house insulation, or $10,000 in double-glazing would normally need 10-15%pa repayments to be economic.
    • Because two parties benefit and pay, the retail customer might need pay ~5-7%pa [guesstimate]
  • If the retail customer made an up-front payment, this would apply to their share of the investment, not the Power Generators an vice versa.
  • The debt would need to be tied to the property and transfer on sale of the property.
  • Some of the most motivated large investors should now be the Power Generators and Distributors because of the Carbon Credits they could on-sell.
  • If the ROI was attractive, there could be unit trusts for small investors.
Modified tariffs scheme:
  • Bulk payments from Power Generators to Investors. Based on a formula related to benefits realised.
  • No change to "off-peak" tariffs, want to encourage load-levelling.
  • Increased peak tariffs based on houses "energy star rating", to encourage swapping into the scheme.
  • A lower peak tariff for "high star" ratings houses.
    • during the loan repayment period, a surcharge on the rate, or in the bill, to repay the investors.
Smart Meters and the Smart Grid improve the ability of the retail customers to both manage their consumption by balancing rate and subjective benefit, and for Energy providers to charge variable rates to consumers based on aggregate demand. The act of allowing consumers to assign a monetary value to the benefits they receive considerably improves marketplace efficiency. If it costs more, peak demand will decrease allowing Power Generators to better match capacity with demand and reduce the proportion of idle assets.

While these current approaches allow consumers to assign a monetary value to the benefits they receive, they do not provide incentives to either power consumers or producers to save power, not a means for Owners of Capital to invest in this market.

The whole negawatt notion is intimately tied to providing investors a good Return, but that seems difficult.
The central problem is: How do you charge for the absence of something, a watt not supplied?
There is no meter that can do this, but you can charge a higher peak-demand tariff to encourage changes in behaviour.

For Power Generators, the problem is much simpler: the average number of consumers, the peak-demand and aggregate use can be compared day-on-day. Changes can be calculated and a contractual formula used to calculate negawatts provided and their economic benefit to the Power Generator.

There is a real problem: if the Power Generator hasn't realised any benefits, then why would they pay?
All the fixed-plant investments are sunk costs, It is only when an extra investment is avoided, or some gain can be made from underutilising plant, that the Power Generator has a tangible and quantifiable benefit.

The Carbon Trading market now provides part of the answer: Owners of coal-fired power stations can sell Carbon Credits if they can reduce demand.

The other side of the equation is somehow crystallising the benefits to consumers and Power Generators of improving power-use efficiency. Both would enjoy the long-term benefits, but neither is incented to make the full investment when the other beneficiary gets a free-ride.

There is a well-known counter-intuitive Economic effect of improving energy efficiency:
It often leads to an increase in total energy demand/consumption. This is suggested as an outcome of using efficient L.E.D. lighting, with lighting estimated at 6.5% of global demand.
Without looking hard, the best economic modelling of the benefits of negawatts I can find, is a lecture given in 1989 by Amory Lovins.

His back-of-envelope calculations look promising, but seem to omit one of the major costs of retro-fitting: labour. For a large investor, retro-fitting low-value items like light-bulbs to houses will be dominated by the labour costs. For small and medium enterprises, a simple saving like swapping from v-belts to toothed-belts would mean significant down-time, complex adaption of old equipment and possible consequential breakdowns. With the investor picking up the tab for "time and materials", it doesn't on the face of it, look like retro-fitting and in-place upgrades would be economic.

The adoption of, or upgrade to, modern energy efficient technologies for a viable negawatt scheme has to be:
  • DIY for low-value items,
  • upgrade of high-cost appliances/systems, like Air Conditioning/HVAC, or
  • green-field sites or large-scale upgrades/renovations such as high-rise office conversion to apartments.
Whatever the answer is, if it was obvious, because of the potential size of the market, you'd think people would be doing it now. Perhaps the Smart Grid will make the difference.