Saturday, 26 May 2012

NBN: Demand Forecasts and Liberal Policies

The NBN started as an estimated $5B Rudd/Conroy project tender to deploy Fibre-to-the-Node, to which the owner of the copper network to the Nodes, Telstra, declined to respond beyond a single page.

The next iteration was the $43B Rudd/Conroy Fibre-to-the-Home (FttH) scheme as a tertiary-level Stimulus Package, addressing longer-term impacts of the GFC. It hadn't been ALP policy before then.

After Kevin '07 became Toast '10, Gillard/Conroy had the opportunity to walk away from the NBN, but the ALP became wedded to the NBN in the 2010 election.

In the spirit of the knife-edge Parliament, the Abbott/Turnbull Opposition stance on the NBN is "not what they said", with Turnbull initially charged by Abbott with "destroy the NBN" and now having morphed that into "we'll do it cheaper, with less waste".

The NBN is the most notable current place where Politics meets Engineering.

The tension in this project is between the lead-time for large infrastructure projects and the build-up of consumer demand at the offered price-point. It takes 5-10 years to deploy new technologies versus a 2-3 year doubling period for Internet demand.

NBN Co now seems to have a 3-year plan to roll-out services, starting this year and perhaps finished by 2015/16. Mike Quigley was appointed in mid-2009, suggesting 3 years to build-up the organisation, design and plan the network and arrange contracts, and another 3 years to roll-out a large fraction of services, with full deployment taking until 2020.

Six years from nothing to mostly done, with another 3-4 years to finish off, seems quite an achievement to me. But the only predictable thing with big projects is that there will be unpredictable delays and problems... So they are running behind plan and discovering problems in basic data they rely on. [ZDNet 25-May-2012]


The ZDNet article reports that sign-up rates of the ~3,500 current users is significantly different to their projections of early 2012.

Projections for download {12 : 25 : 50 : 100 Mbps}  [upload {1 : 5 : 20: 40 Mbps}] were:
  • estimate { 52% : 17% : 23% :   8%} and
  • actual     {18% : 35% : 10% : 37% }
Whilst generating more revenue, this suggests to me two things:
  • there is significant pent-up demand by "early adopters" for higher speeds, and
  • the NBN Co internal models are, at first blush, significantly at variance with customer sign-up.
What we can't know yet, and is commercially critical to NBN Co and ISP's, is:
  • Are these first customers representative of the rest of the market? and
  • Will they renew at these rates, or fall-back to cheaper plans?
Let's assume the data is a reasonable representative sample...

Mr Turnbull already has a problem with his Fibre-to-the-Node (FttN) deployment:
  around 80% of these people have opted for speeds faster than the ADSL 2+ (24Mbps) best possible speed (300-500m). Attempting to build a faster network is both more expensive and with our old, degraded copper network, "problematic". It won't deliver anything like the capacity "on paper".

Lets say that given the choice and a competitive price, half those 35% will go for a slower ADSL 2+ service, at best 40% of customers will be happy with FttN. 60% of customers, if they follow the initial sample, will be looking for a guaranteed 25Mbps download and higher.

If Abbott/Turnbull form government at the end of 2013 and direct NBN Co to scale-back its FttH roll-out and create plans to deploy an FttN and leverage the existing HFC cable networks, perhaps they could start work within 9 months [Jul-2014] and aim for a 2-year roll-out, the end of 2016.

Being generous, lets say it costs less than the Rudd/Conroy plan: $4B.

Now, in mid-2012, consumer demand for bandwidth is doubling every 2-3 years [data for this later].

In 4 years, bandwidth demand will be 3-4 times the current average ~4.5Mbps, or 12-20Mbps average.

If we already have 60% of the market paying for >20Mbps when they can get it, then at the end of 2016, that number will be significantly higher, perhaps 85% [guesstimate].

NBN Co will experience strong consumer pressure for fast Fibre, not Copper.
The $4B for an FttN network will be at best a stop-gap.
If it cannot pay for itself within 6 years (2 yr roll-out, 2yr use, 2yr replacement) then it isn't cost-effective. My rough guess is an IRR of 15-20% to achieve this.

Abbot/Turnbull will have to go to the 2017 election with major electoral concerns:
  • Why can't most people get decent internet speeds? and
  • Explaining why $4B was wasted on an FttN network, outdated before commissioned.
What seems missing in most traditional models of Internet demand, including it seems, Turnbull and the Liberal Party, is:
  • Taking into account Rogers "Diffusion of Innovation" theory, and
  • modelling demand as a constant percentage growth: exponential, not linear.
Rogers theorised 4 important groups commercially, accounting for 86% of the market (the remainder are "laggards" or "Never Adopt"):
  • Innovators (2.5%)
  • Early Adopters (13.5%)
  • Early Majority (34%)
  • Late Majority (34%)
Commercially, it's very difficult to spot Innovators. They are a small group and will put up with a lot to get high-status or high-performance goods and services.
The successive waves of Early Adopters and the Early/Late Majority are trackable and should be able to be modelled.
When a new technology has a 5% take-up rate, it is on the way to becoming a Big Hit.
Apple have this forecasting down to a fine art after the iPod, Macbook, iPhone and iPad.
After 5%, the only question is predicting the final market size, because the rate-of-doubling is well established.

Modelling things as a "constant percentage growth" is commonplace in finance and business.

Why does it work?

Because of "network effects" - the same driver behind "Diffusion of Innovation".
People get interested in new products/technologies when they've experienced it first-hand and have a 1st-order friend/acquaintance using it that can give them help and guidance. In business, the "Help Desk" does part of this.

People generally associate with like-minded people, their peers.
Innovators will search out other Innovators, Early Adopters will hang-out with their peers mostly and together they introduce the new "stuff" that Really Works to the Majority.
These are people that might use and appreciate new things, but whose time and focus is taken up with other Life Priorities, like families, jobs or their careers and businesses, be it Private Industry, Art, Performing or the Public Service.

There are very solid reasons that "network effects", also known as "word of mouth", see constant percentage growth, and many examples of it in the 15 year history of the Public/General Internet.

Where's the data to support this continuing fast doubling-time of demand for internet bandwidth?
Didn't all that end in 2001, when the Internet Bubble burst?


Akamai has a very good global measure of demand for Internet services, now over 4 years old, their Quarterly "State of the Internet" report. At the end of this are included screen-shots of the spreadsheets and graphs based on their data.

Evidence of Late Majority moving away from "old technology":
  • Examine the "%-256kbps" charts.
    • Even with the GFC, in 4.5 years, this has gone from 11% of total traffic, to 1.6%: ~7-fold decline, or 2.8 doublings: a halving-time of 1.6 years, even with a GFC-driven increase.
    • This isn't a count of the number of narrowband connections, just a (relative) percentage of total connections.
    • The total market is growing and the numbers of narrowband customers declining.
    • Every Late Majority/Laggard consumer that upgrades from narrowband, substitutes it with a higher-speed plan. This gives us a pointer to rate-of-change.
Evidence of Early/Late Majority increasing bandwidth demand:
  • Examine "Avg-Mbps" and "Peak-Mbps", for Post-GFC period
    • "Avg-Mbps" is "average connection speed", or the mean of speed (MB/second) for all connections. It includes the limits imposed by the ISP networks and interconnects.
    • "Peak-Mbps" is a better indication of the link-speed of clients. It is the average, across all observed IPv4 addresses, of the peak speed seen for that address.
    • For Q4 of 2011, there is a 37% increase in the average connection speed and 25% in Peak. This could be an artefact of the sampling, or due to structural changes due to better "backhaul" networks or consolidation of ISP's.
    • There are two sets of charts prepared with and without this datapoint, post-GFC:
      • the doubling-period for the 7 Quarters is 3.81 yrs and  2.39 yrs (Avg, Peak)
      • the doubling-period for the 8 Quarters is 2.19 yrs and 1.7 yrs  (Avg, Peak)
Summary:
There is hard, credible data that suggests the doubling period for customer Internet bandwidth demand is still in the 2-4 year range, most probably doubling 2-2.5 years.

Models that do not incorporate this "constant percentage" (exponential) growth will seriously underestimate demand.

Update [28-May-2012]: Dr Neil Gunther has analysed the Akamai data as a Time Series, albeit a small one, and initial results are that it is approximately exponential growth, but the simple scatterplot trendline underestimates the forecast. The 2014 (2 year) projections, expressed as logarithm (kbps) are around 3.9 ± 0.3 [95% CI] and ± 0.2 [80% CI].
Converting to Mbps, 2014 forecasts: 8.192Mbps,
   95%-CI: 4.46 - 15.85 Mbps, 80%-CI: 5.13 - 13.18 Mbps
The anomalous Q4/2011 datapoint still creates questions.



All years

Pre GFC

GFC (2009)

Post-GFC

Comparative Charts, pre/post GFC.

Friday, 18 May 2012

NBN: The Platform, App Store and Network are the "Killer App"

Synopsis: The Killer App is the new Ecosystem:
   small Apps, Platforms for Ordinary Folk and the Ubiquitous and Universal Network.

Reviewing notes for these posts:
Led to a new insight:
Killer Apps aren't necessary or likely in the Post-PC era.
In 1995 it was: "The Network is the Computer" ,
in 2012 it's: "The Platform is the Application".
Just the steady take-up from "Early Adopter" to "Early/Late Majority" accounts for a 15-20 fold growth in demand... Facebook & Google started small and Just Kept Growing. Ditto the iPhone.

How big will they get?? Still more people on the planet who can connect to all of them, so "bigger".

I'm starting to form a view that the "Killer Apps" of the PC era were an aberration.

Once people have bought the enabling technology (passed the barrier-to-entry), the marginal cost of additional Apps/Functionality is extremely low and even the simplest of things can be 'cost justified'.

So much so, that even taking 30mins to cost-justify an App purchase would be more than
the goods are worth. Payback on a $5 App, only has to be 5 minutes of saved time, once.
[Which leads to the question: Who's counting the savings for business and individuals?]

The end-end platform is today's Killer App... One Network, One Platform, It All Just Works.
This is going to fuel growth for a decade or more. Look to the history of mobile (voice) phones and "The Internet" in households.
Once the pricing was right, almost the whole of the population has joined in - but in the staggered fashion you'd expect.

That's the point of these things, they're like Post-It Notes® from 3M.
Ordinary people look at them in use and "Get it" very quickly.
It explains why the iPad took-off faster than the iPhone that shot right past all iPods.

The usual Rogers "Diffusion of Innovation" and more lately Christensen's "Disruptive Innovation" models apply. People use the products or services more as they become more comfortable with them, understand them better and pricing is not a barrier. Network effects spread use, as more people get entrained, either because "its the new cool thing" or "hey, I could really use that".

This is the Secret Sauce that Apple understood technically: most users are not computer nerds, good systems must be very easy for Ordinary Folk to use and to accurately model in their heads.
[Apple have their own approach to marketing and controlling their Brand. Not my area of expertise.]

The real commercial question today is: What's the growth potential of this App/Site/Service?

Turnbull and the Libs questioning is based on a false premise: There are No More Killer Apps.

The apparent article of Faith that "faster, better networks will provide an economic and social benefit" can be easily supported with this view. Lowering barriers to adoption will hasten the spread of existing innovation and the quicker adoption of new innovation. I.T. and Communications are still the number 1 way to improve economic worker productivity. People intuitively understand this and apply the same tools, albeit for different purposes, in their personal lives.

There can be no great debate of "value to households versus the costs".
The only debate is: Just when and how much take-up will individual Apps and Service get?

NBN: What history tells us - Facebook's $100B "value creation" in 7 years.

Turnbull has a central criticism of the NBN, and it is astute and credible:
Is there any evidence it will provide Extra Value, or is that just an Article of Faith?
I watched the Mark Zuckerberg piece on ABC one night prior to their $100B float today, which triggered the thought:
The NBN Mk 1. won't be fully deployed for 7-10 years.
What might be different then?
Maybe looking 7-years back might give us some clues...
Zuck started in 2005 and isn't 30 yet and changed the world.
That's a Generation or two in Internet time, and only a fraction of the lead time for physical infrastructure and large scale change like upgrading servers and corporate technology.

NBN opponents assume "there has to be a Killer App" for the NBN.Microsoft is still insisting "Everything is PC" whilst looking for The Next Big Thing, and languishing economically. Meanwhile Apple, Google, Facebook and a host of hot new startups that build on the available infrastructure.

Sometimes just showing up is the Killer App in this the post-PC world. Some examples:

  • cheap laptops
  • 1+TB disks
  • netbooks and ultrabooks
  • smartphones and tablets
    • The App Store redefined software writing, marketing and sales.
For the NBN to be an outrageous success, we don't need a Killer App.
  • just watch/wait as everything being done now by Early Adopters washes through from them, to the Early Majority to the Late Majority. This is moving from the first 5%-ile to 85%-ile of the market, a 15-20 times growth.
Here's  my starter list of How it Was in 2005 [contributions, corrections, updates most welcome!]:
  • No Facebook, no Social Media
  • No twitter (?)
  • Microsoft was gonna beat Google to a pulp and was sitting on a mountain of cash... Growing at 10%/yr still.
  • Yahoo! was still worth buying
  • BillyG still  at Microsoft, but Ballmer was on the Throne (CEO).
  • Could you still buy an IBM PC or laptop?
  • How many Hard Drive manufacturers did we have? was still IBM one?
    • There are just 2 majors now (Seagate & Western Digital)
    • you could still buy IDE/ATA drives,
    • SATA @ 3Gbps was cool and
    • Fibre Channel was for Major Grunt - now its well on its way to being a footnote of history. 10/40/100Gbps Ethernet are already standardised and being shipped.
  • HP was still a major player and trumpeted its "innovation"
  • Dell. Can't remember, but s very strong player.
  • SUN was *the* strong Unix/workstation player. Had bought StorTech and going from strength to strength. ZFS was new and exciting and going to
  • Had SGI gone under?
  • Had netbooks arrived? The buzz around the first running Linux was so loud, Microsoft had to introduce a competitive priced 
  • Laptops were yet to overtake desktop PC's in sales volume.
  • We hadn't noticed yet that Intel had hit the power-wall and would get into multi-core.
  • I can't remember the cost of Flash storage ($/Gb) nor the size.
    • But it was pretty impressive. And what is it now? A flea-bite. [A$10 for 4Gb in the supermarket today. Not $75 for 1Gb]
  • And the 1TB drive was years off. 15K drives were "really slick" vs today's $2-5/Gb for SSD.
  • Bluetooth could've been a standard, but was top-of-the-line, bleeding edge and expensive.
  • Were we calling it WiFi yet? Was 2.54Hz and 20Mbps the limit?
  • Were folks still thinking of free municipal WiFi mesh networks.
  • the last retail wireless network (Ricochet) ran until 2008 in Denver.
  • Did we have Firefox? Thunerbird? Opera?
  • had Internet Explorer got tabs yet?
  • Apple Computer was yet to become Apple. (I think)
    • The iPod was cool, but for kids and Macs were still marginal.
    • which of the peer-peer sharing networks were 'King'?
    • Song piracy was still a worry with peer-peer networks, not iTunes.
    • The Kazaa filesharing court case was yet to start...
  • The iPhone was 2 years away, Android further.
    • Was Java storming along or muddling under SUN?
  • Did we have 3G mobile?
  • If you wanted the mobile business device, you'd buy a Blackberry and Palm wasn't yet a joke.
  • Nokia would've been a major plank in your long-term Tech Stocks, it still generated 55% of sector profits.
  • Did we still have Nortel or whatever Bay Networks etc became?
  • Had "Software as a Service" been coined?
  • How big was the largest Botnet? [Nothing compared to the millions now]
  • Was Google doing AJAX? Was XML 'really cool' or just a thing?
  • Were Massive Multi-Player Games (World Of Warcraft) going? Were they 'rocking' or just taking off?
  • Where was the X-box? The Sony PS3 and Wii?
  • Telstra were calling the shots here. Optus was still trying.
    • Orange/3 and Vodafone weren't merged.
  • How far was ADSL 2 rolled out? Was it available at all?
  • And we were only 9 years into the domestic Internet Revolution.
    • In 2005, lots of folk were still on dial-up and were happy with it!
  • There were some Politicians thinking that Digital Watches were Pretty Cool! [from Douglas Adams]
  • Howard was 2 years away from Kevin '07 and a massive rout.
So that's a start... I'm sure others can add much more/better stuff.

But my point is:

Turnbull and the Libs won't be finished their version of the NBN in 2018...
Not nearly!
Thinking "we can upgrade it later" is a very poor idea:
the rate-of-change of the two worlds is so very different, physical upgrades must be anticipated and acted upon years ahead of their expected need. When its obvious an upgrade is needed, you've missed the window of opportunity for a long margin.
  What will we be using the NBN-powered Aussie-Net for in 2018/9??
  We Just Don't Know! That's the only lesson we can draw from History.

It will be things we can't imagine, not nearly.
All we know is that it will stretch services & infrastructure in new ways and that it will infiltrate our lives so that we can't live without it.

There is some kid in a dorm room right now tinkering with some code....
Will we be ready for the transformation that'll be wrought in 7 years?
Are we preparing for it now, or just praying we can muddle through?

NBN: L2 VPN's and turn-key NSP Telco solutions

Tony Simmons recently wrote a piece suggesting that the Banks could be their own Telco using the NBN. Banks in Australia and New Zealand have run co-operative businesses for many years. A couple that spring to mind: the Australian Payments Clearing Association and Bankcard, Australia's first Credit Card in the 1970's, was run by "Charge Card Services".

There are many advantages, not just cost, but Security [protection against hacking/attacks], very strong Identification of source and destination, and strong independent logs and auditing of transactions.

In fact, the L2 VLAN abilities of the NBN allow a whole range of very interesting non-switching-provider networks.
  • Federal Government is an obvious one.
There's already ICON around Canberra, but every Agency has different supplier agreements and the Telcos play "divide and conquer" with them. There only needs to be one "GovieNet".
Such a single network would allow employees, contractors and firms to have certified connections (even at home) to link their Certified Office Laptops - and at reasonable speed to FileServers etc!
[No "BYO" equipment allowed on a Secure network.]
    • Voice, secure email and secure file/record sharing/transfer benefit hugely from this...
  • Share the FedGov network with Local Govt, who have no clout and few resources, except for the biggest like Brisbane City Council.
  • Banking, finance and news are obvious communities of interest that have large budgets and expensive information products.
  • e-Health, especially between Hospitals, Labs, Imaging and GP's/super-clinics would greatly benefit. The slam-dunk applications for e-Health are:
    •  backups and secure, trusted and logged data-sharing, and
    •  communications: email, 'flash messages', booking/calendars (gotta trust others)
  • community-of-interest VPN's (Closed User Groups in X.25 network parlance) could finally make EDI realise its potential!
All the smaller grocery shops, their suppliers, their transporters and their EFTPOS facility suppliers have a common interest. Especially when in the central network, IDS and IPS (intrusion detect/prevent) equipment can be coupled with 802.1X [port-based network access control]

I think when these existing Industry groups and associations realise how simple it will be to create their own closed/controlled networks that not only can they provide something of real value, but create for themselves an on-going revenue stream of real value to members (to support the admin and lobbying), there will be a very long queue.

But to enable this, there will have to be turn-key providers that offer complete 'NSP/VPN' packages, including the Telco registration/NBN interconnect forms, or to sign-up with an existing Telco...

Some orgs (Banks) will already have their own secure & high-quality hosting facilities.
Others will need to lease them as well.

The complete package is to add Voice+Data mobile for subscribers.

If Business realised the benefits, cost reductions, security benefits, (radically) improved productivity and control/flexibility L2-VPN's might offer them singularly and communally, they would be knocking down the doors for NBN connections.

But the critical enabler is those turn-key solutions...
People outside Telco's think there's a whole sea of Secret Sauce needed.
I think if it was as simple as a PABX, and the existing collective bodies understood this funding-freebie, there'd be a stampede.

Turnbull wants a reason.: There's one that goes to the heart of his Politics and Constituency.

NBN: restructure to answer marketplace questions

I think there are 3 actions the Gillard Government can undertake to improve the prospects of the NBN.


1. Reform NBN Co into a Co-operative owned by Telcos and ISP's.

Takes away the problem of the wholesaler being a monopoly and setting prices too high.
It's necessary to get the voting/Governance right so Optus/Telstra don't automatically control it, but still have some influence.

Funding? I don't know enough about the topic to know how the Govt can raise bonds for a Co-OP.
Perhaps they can be allowed to raise Govt Guaranteed Bonds like the old Telecomm/Telstra Bonds.


2. Let the market speak!!

Allow subs to prepay for service to bring forward their installation. This allows retail customers to put their money where mouth is, and is an additional source of cheap funds. There'd need to be several levels of pre-payment from ~$250 to $10,000, each with a different incentive/discount schedule. If whole street or communities pre-paid to $2,500/household, that should become a "Priority 1" install zone.

The central weakness that Turnbull exploits is "where's the demand?" [c.f. "where's the beef?"]

If you have a bunch of folk who've put varying amounts of money, not promises to pay, on the table, you've got an incontrovertible measure of "value to customer".


3. Go Big, Go Early and answer the underlying assumption "faster isn't just more of the same".

Are the 500 days left before a mandatory election enough to get a major deployment done?
A city of 500,000-1,000,000, in addition to moving on the "low hanging fruit" in the major markets (Capitals etc), would be a definitive economic testbed to show that the NBN is either "just a better ADSL" or something different and synergistic.

We then have an undeniable benchmark to answer the question:
Does the NBN provide extra social and/or economic value?