Friday, 28 September 2012

NBN: Local NBN opportunities - TransACT FTTN

To show I'm ideologically "only fibre will do", here's a small proposal the Coalition might pick up on with their opportunistic NBN model.

iiNet acquired the $280MM assets of TransACT for $60MM in Nov-2011.
This included the $80MM FTTN network built around 2002, VDSL max 300m, passing ~55,000 premises, with a VDSL2 upgrade (full or partial?) around 2008.

Whilst TransACT/iiNet have deployed pure Fibre, passing 11,000 premises since 2008, they could revamp their FTTN network, making it "layer 2 ethernet" compatible with NBN Co.

They are already an "open access" wholesale provider, with full backhaul installed within their operating region. If the network was built with a 35-year design life, it still has 25 years to run economically.

Does this need any FedGovt support or incentives?
Probably not, but it could push iiNet to quickly provide "fast broadband" available via the general NBN Co arrangements.

Under the new Telecommunications legislation, NBN Co is not the only wholesale provider, but all providers need to offer "open access" to their wholesale networks, presumably through the "Points of Interconnect" using 802.1QinQ (ethernet Layer 2 VLAN in VLAN).

If this iiNet decided this was profitable, it would show two things:

  • that FTTN could be profitable against FTTH, albeit with already installed and significantly discounted Customer Access Network for a limited time, and
  • the NBN Co overbuild of TransACT's FTTN could be economically countered.
But in the end, I do want 100Mbps, which I suspect I won't get with VDSL even over 300m of purpose-laid cable.



Thursday, 27 September 2012

NBN: Turnbull's real Challenge - find better Fibre solutions

Being a politician is hard, I wouldn't do the job for anything. I have a lot of respect for Mr Turnbull not just doing the job, but continuing to "make a difference" when he could spend his time elsewhere.

Does anyone in I.C.T. doubt that the NBN is important infrastructure for the future of our country? No.

Do they think that the current FTTP design are the best options possible? Many wouldn't.

Mr Turnbull can add great value to the debate, even create a strong Policy position for the Coalition, by addressing this question:
Can we come up with better local solutions to deploying fibre or temporary fast broadband access to Greenfield and Brownfield areas?
There are three additional solutions I'm interested in.
  • WiFi 'mesh network' transitional networks. Low capital cost, fast deployment, broad coverage and temporary. Ask for a co-payment for subscribers wanting this solution.
    • Whatever happened to the Philadelphia City-wide WiFi network??
  • Explore using existing infrastructure right-of-ways. Google seriously suggested using sewer lines, I presume somehow attaching conduit to the top of the pipes. In Urban areas, this network goes to every house, as does electricity. Can these existing infrastructures, not just the Telstra pits and cables, be leveraged for speed and cost?
    • TransACT famously used the above ground electricity pole network in Canberra to deploy their fibre and "cat 5" cable. Seemed to work well.
  • In the country, there is already an extensive fibre network and a near-universal utility infrastructure already installed:
    • Telstra run fibre to most of their rural (SCAX) exchanges.
    • There is already an extensive 11KV electricity network around rural areas in most of Australia, East Coast at least.
    • The Telecommunications Act does not mandate that NBN Co connect all premises. Any operator can create a network as long as they offer "open access" wholesale services at reasonable rates. "Opticomm" already have a successful business like this.
    • There is room for a joint venture between Telstra and the various rural Electricity Distribution suppliers to create fibre connections to all electricity in the country.
      • As the NBN Co Fibre/Wireless Extension programmes layout, there is no impediment to charging subscribers for services installed.
      • Rural electricity consumers are already familiar with the financial model: consumers pay the full installation cost of their connection and the asset is transferred to the supply company who also assumes maintenance and replacement costs.
So, how many better solutions to running fibre are there?

Can Mr Turnbull come up with a good pure-FTTP model that really will be "Better Broadband - cheaper and sooner"? That would be a great contribution to the debate and our future.

Wednesday, 26 September 2012

NBN: Coalition reluctance to "Name the Date" (and Price)

Earlier I've wondered if the Coalition would offer any guarantee on their Broadband Promises and posed Mr Turnbull the question:
Will ASIC or the ACCC regard those promises are mere political puffery or commercial statements, misleading if false.
Whilst all Political Parties sell their Policy Platforms to the electorate during election campaigns and are legally insulated from the accountability required of businesses, Broadband Policy seems to me to now be a tricky area.


Mr Turnbull responded to my question saying it didn't apply.

NBN Co is a business selling services to the public. Not only does the ACCC especially regulate the services it supplies, it must meet all usual commercial law.

I argue that now, with the Government owning NBN Co, that promises made relating to the services it supplies are now fully or partly commercial in nature and making explicit representations about services that will be supplied by NBN Co.

With ~$35B of public money at stake, I think the Coalition has a Duty of Care under the TPA/CAA to avoid false or misleading statements about commercial services they will cause to be delivered.

They aren't, in my non-legal opinion, selling political promises to a skeptical, even cynical electorate, but advertising what may be construed by a reasonable person as real services.

At worst, if they campaign on "sooner, cheaper, more affordable", implying an FTTN solution, then reneg on either the solution or the whole NBN by saying "it's worse than we thought", then have they deliberately misled consumers?

Perhaps Mr Conroy needs to find a way to allow consultants for the Coalition to see the NBN Commercial-In-Confidence data needed to avoid that tactic.

Even if they can technically avoid commercial accountability for election promises related to Broadband, they have a moral duty to live up their self-portrayal as "Good Economic Managers".
That can only be enforced by electors at the ballot box, and as we've seen by the "Ju-liar" campaign, the backlash can be surprisingly strong.

Anyone know how to get an opinion on this from the ACCC and/or ASIC?
It'd be a wonderful precedent...

NBN: Coalition Broadband Policy, Sep-2012 edition

I've a number of criticisms of Mr Turnbull's latest release of the Coalition Broadband Policy, not the least is that the NBN is equally about Business and Consumer/Residential use, not just residential.

The implied statement that I think Australians will find repugnant and unacceptable is the abandonment of equal-access, in the shape of both non-uniform pricing (pay more in the bush) and highly inequitable access: most people will be poor cousins with limited access speed, while many in urban areas, won't get a connection outside the 1km wire-path.

  • The fluidity of the Policy and uncertainty of its content greatly lessens their credibility and the believability of the Policy.
  • The Survey is poor and looks like a distraction.
  • The Coalition has a very poor record on a number of Policy fronts, especially Telecomms.
  • The Government was pilloried over the lack of detail in the NBN plans any number of times. Having hard questions and demanded answers, the Coalition should be prepared to be held accountable in the same way. They are making a pitch to the electorate to be the next Government.
  • Where's the Beef?
    • What's the "Value Proposition" for the Coalition Broadband Plan/Policy?
Nothing further needs to be said about the far too frequent "updating" of the Coalition Broadband Policy.

"Fast Broadband" Survey
I've had a look at Mr Turnbull's survey and was unimpressed, not for the obvious reasons of it being self-selected, open to rigging/bias and will bring little or no new information.

It's long and demands you supply personal information, with no mention of a privacy policy nor how the data will be used (Politicians are exempt from SPAM legislation).

I think there are only three explicit questions that should be asked, recorded against the originating IP number and/or a 'cookie':
  • Postcode
  • Would you commit to 50Mbps or greater service within the next 3 years.
  • Would you be prepared to pay $500-$2,000 to secure that service?
  • and, I liked Mr Turnbull's "Speed Test". That'd be a nice optional input.
But the really confusing thing for me is: Why a survey?
It can't be to get real feedback - it's a token at best and useless at worst.
Is it just a "look at me, look at me", a distraction/diversion or an attempt to be "seen to be doing something"?? I can't figure why someone as talented and knowledgable as Mr Turnbull would waste his time on it.

Coalition Policy Track Record
In 1996, the Howard/Costello/Faye government attempted to a general Outsourcing of IT Services within the Federal Public Service. This didn't go well, financially or in providing services. Most Agencies/Departments have made attempts to unwind the worst aspects, such as providing two levels of PC Help Desk: General and Special People. They are willing to spend more for a better service to Upper Management.

The privatisation of Government Assets, infrastructure and business, including Telstra, has a very chequered history.  Generally, like Outsourcing, Agencies/Departments have to pay more to get a worse service than they had with direct employees. What you might think of as the main push, reducing staff numbers in the Public Service, was not achieved at the end of the Howard Government.

Despite the massive uptick in potential revenues during the pre-GFC Mining Boom, the Howard Government underinvested in Infrastructure. Ports, railroads, roads and other facilities were not developed. Priority was given to "middle-class welfare", giving tax breaks or handouts to special interest groups.

Hiring contractors to run Prisons and Detention Services is problematic to say the least. Contract staff do not fall within the oversight and governance provisions of the Parliament, the Public Service employment provisions (Code of Conduct etc) nor Reporting and Accountability: Openness and Transparency.

Not directing Telstra in 2005/6 to proceed with its 12Mbps ADSL2 FTTN, when the Minister had the right to direct them in the National Interest.

Selling Telstra in 2006 without a demerger. What were they thinking?!?! That was never going to end well, either for consumers or on the Stock Exchange.

My personal favourites are:  The ACCC action against Telstra on ADSL access charges, not directing Telstra to co-operate with Optus in the National Interest for the Cable TV rollout (allowing the overbuild and incomplete rollout), allowing four Mobile Phone networks to overbuild one another with Telstra offering no roaming or 3rd-party access, and Telstra refusing to activate existing ADSL2 in Exchanges until competitors had installed their own DSLAM's, like the Optus HFC network, denying them full commercial value.

In light of the Coalition's short-sightedness and mishandling of Telecommunications Policy over a decade when they were the full or majority owner of Telstra and could direct it, I've no reason to believe the current Broadband Policy will be any better.

Criticisms: Make them, Answer them.
The Coalition doggedly pursued and criticised the Government over their NBN plans for years:
  • What's the Cost (of your Great Big Expensive White Elephant)?
  • Where's the Cost-Benefit Analysis for this Project?
  • Claims of "massive blowouts" (4%) in Project Estimates.
  • "Everyone is incompetent" because the Project hasn't achieved projected milestones within a framework of reluctant, recalcitrant and combative entities necessary to proceed:
    • installation contractors drawing out supply negotiations and attempting
    • Telstra causing very protracted negotiations and looking to maximise their payments under any and all schemes of arrangement.
    • Opposition tactics designed to obstruct and delay the project where possible.
The Coalition must now be prepared to answer all the same questions it has harped on, for having asked them, they've signalled the questions are important and implied that they are always concerned with exactly those issues:
  • A firm Cost Estimate, even with an Upper Bound.
    • Projected Project Cost Deviations. What we can expect the final amount to vary by.
  • A Cost-Benefit Study, not a simple user-intention survey.
  • How they'll ensure "Nobody we employ will be incompetent".
    • Ideally, how they know they their Plans and Projections will be met, within limits they define.
  • How they will control costs to better than 4%, because otherwise they deem it "a blow out".
    • Alan Kohler has convincingly argued with Mr Turnbull that by signalling he has both an absolute commitment to deliver an FTTN network and do it speedily, he will be at the mercy of some of the most viscous and opportunistic construction companies around. Exactly the same folks that gave NBN-Co such a hard time negotiating prices.
  • Just how many people and premises are they intending to supply fast broadband (12-25Mbps):
    • Within 5 years.
    • Within 10 yeas.
    • Never.
  • What Network Demand is the Coalition projecting over the next 35 years, the term of the SAU/SSU contracts?
Where's the Value Proposition for anything allow Hybrid NBN, mainly FTTN?
Is the Coalition proposing a Broadband Network that will last 35 years without replacement, like the pure-FTTP NBN?
If not, they are designing it to be thrown away before its time. That doesn't sound like good economic planning or management to me.

How much cheaper will the total build be? (CapEx)
 But at what cost in Operating Expenses (paying Telstra to lease their copper and maintaining/upgrading/replacing it for them)?
They can't promise a 70% CapEx savings, at best a 50% savings, if they want to place realistic contingencies in their Plan.
They are planning to double or treble the OpEx, by leasing copper to reduce CapEx. Telstra commented they were "spectacularly agnostic" about pure-FTTP or hybrid FTTN. They've done the sums and know they'll make a motza in OpEx charges from the Coalition plan.

The Coalition is only offering 25Mbps guaranteed peak information rate (PIR) with no upgrade path.
Plus, they won't nearly connect that to 90% of even urban premises with their 1km VDSL2-FTTN.

Contrast this with the 1Gbps FTTP equipment being installed now by NBN Co.
Forty time faster today, with a near infinite in-place upgrade path.

The kicker is that these comparisons can't be done just for 2012-2015, or even to 2020. They've got to cover the full period of the current contracts: 35 years. (~2045).

The other side of the coin is roll-out speed.
We know that in 2005 Telstra said they could roll-out 20,000 Nodes (at 1.5km) for 12Mbps in 3 years, at a capital intensity they could support.
The 25Mbps FTTN-NBN now proposed with need ~50,000 Nodes to cover 75-80% of the 6.5M premises Telstra planned for.
Fixing and tuning the copper lines to support twice the speed will take more time, effort and cost.

Allowing for a crash-program of just 1 year design, planning, testing, training and contract negotiations, the network would still take 7.5 years to roll-out. If they started in Jan 2014, straight after the election, they could be done in 8.5 years, by July 2022.

Or they could fast-track the project by spending money a lot faster and costing more per house with higher risks of large budget/schedule blow-outs, but to go faster takes more time planning and training people. A VDSL2 FTTN could be rolled out to 75-80% of urban premises in 3 years, but it'd need 1.5-2 years preparation before construction: 5 years, or the end of 2018.

The Coalition can trade their "cheaper" for "sooner", but not achieve much better either way.

The most respected Network Demand Projections are by CISCO, the preeminent network equipment supplier. For just the next 5 years (2011-2015) they are forecasting:
  • aggregate demand up four times
  • busy-hour demand up five times
  • and demand video and games services will explode after 2014.
If this rate of growth continues for 35 years, it's a 15,000-fold (1,500,000%) growth in demand. You'd have to be foolish and stupid to forecast that far into the future, but what the Internet experience after the iPhone/iPad has taught us is: The Internet is still a high-growth industry, chock full of surprises.

All we know is that we don't know the Future of the Internet, but it's likely to next speeds far beyond what we now expect.

Saying that 25Mbps will keep most people satisfied for 5 years is a safe bet, for 10 years is a risky bet and for longer, you'd be a complete fool.

What the Coalition Broadband plan is offering seems to be:
  • For 50-60% less upfront,
  • but probably 2-3 times more in running costs,
  • we'll provide you with Forty times slower links
  • up to 20% sooner
  • that has no current upgrade path
  • that might have an economic life as little as one third (10 years) pure-fibre
  • will connect far fewer people than pure-fibre,
  • but we'll still connect all new houses with fibre,
  • and charge some people higher prices.
To me, that's a stinker of a deal the Coalition is offering to 90% of the population.

If it was a car, it'd be cheaper than half to buy, would use twice the petrol, need constant maintenance and repair, have a top-speed of under 10kph and you'd have to throw it away while needing to buy three for every one of the competitor, while they'd cost more when you needed them more.

But you could order one and have it delivered a bit sooner. 

The only virtue the Policy has is: it's cheaper to buy!
Nothing else about it, I find, is worth the downside.

NBN: The Coalition Broadband Policy, what we know and don't know

Malcolm Turnbull has released very little detail on the Coalition Broadband Policy, but is very strong on aspirational statements/goals. This is an attempt to document what is known 26-Sep-2012.

The Coalition Tag-line lays out their priorities and policy promises:

  • Better Broadband -
    • Sooner
    • Cheaper
    • More Affordably


Elements stated or implied in: ABC radio interview and an article based on the interview7:30 Report Interview, Coalition B'band Survey, plus unanswered questions:

  • The Coalition is now committed to delivering a National Broadband Network, a major change seemingly co-incident with the Telstra SSU (Structural Separation Undertaking) and NBN Co SAU (Special Access Undertaking).
    • The intent, object and uses of the Broadband Survey is unclear.
  • The Coalition is silent on the return to be demanded of NBN Co. currently 7%.
    • Will this be maintained, lowered or increased?
    • NBN Co's profit target directly affects 
  • The Coalition is silent on the fixed-line to wireless/satellite ratio.
    • Will they maintain the current goal of "93% of Australian premises" to fast broadband?
  • Is the Coalition explicitly abandoning the USO (Universal Service Obligation) and its associated CSG (Customer Service Guarantee) for Telephones?
    • Mr Turnbull has stated that the Coalition doesn't believe in single-price services, but in making subsidies open and transparent, a variant of "User Pays".
      • The policy assumption is customers will be issued "coupons".
      • Will this only be for residential services, small-medium businesses or all services?
        • Farms are run as businesses, will they be given the same economic support as the FTTP-NBN single-price policy?
    • Will there be just one "price controlled" area (Urban) with all other areas "at market price"?
      • Who will set the subsidies different groups of subscribers receive?
        • The ACCC, a Government Department or someone else?
  • FTTP for "Greenfields" developments. (First Choice or Only Choice?)
  • Opportunistic use of existing resources, such as HFC.
  • Nothing said explicitly about Regional, Rural, Remote services.
  • Nothing stated about Business Broadband.
    • All statements/responses phrased as Consumer Broadband only.
  • Nothing stated about fast Broadband for:
    • Education
    • Health Providers
    • TeleHealth services for Patients/Consumers
    • Police, Rescue and other Government services
    • Councils and State Government services and networks.
    • Other Smart Networks applications, like Electricity.
  • FTTN as primary solution for Urban areas.
    • VDLS2
    • Guaranteed 25Mbps, Max 80Mbps.
    • 1,000m (wire) limit
    • What service options will there be for "people on top of a hill" raised by Mr Turnbull within the FTTN-NBN?
      • There is a strong emphasis on "economic viability", implying many premises within FTTN service areas will be deemed "outside the 1km economic limit".
      • Is there a target ratio? E.g. "95% of premises within the FTTN area will be connected"
    • Nothing stated about the copper Customer Access Network (CAN)
      • Who's technicians maintains the copper CAN?
        • Presume the NBN's, as per ULL maintenance.
        • 25-25 years of maintaining a large proportion of the copper CAN (est near $1B/year and rising) will be very expensive.
      • Who pays for the line upgrades, balancing, repair necessary to achieve the guaranteed access speed?
        • Telstra, who's asset it is, or NBN Co who needs the work performed?
      • Who pays for on-going repair and replacement of the Telstra copper CAN?
        • Telstra, who's asset it is, or NBN Co who needs the work performed?
      • NBN Co may own the fibre and Nodes, but not the whole asset, making Standard Accounting Reports complex, difficult to understand and unlikely to easily reflect a fair-value of the assets.
      • Lease or buy the copper from Telstra?
        • Presumably, ULL lease and current pricing schedule.
        • For how long?
          • Leasing the "ageing" copper CAN for 25-35 years will increase input costs and decrease NBN Co margins considerably. Great business for Telstra.
    • Nothing said about Telephony and Telstra Exchanges/POTS
      • Will FTTN-NBN include a version of the Customer ONT?
      • Or will it be a simple single-port Broadband device, such as customers now must supply for ADSL services?
      • Will an internal battery, with regular replacement by the consumer, be mandated
    • Who will pay for the FTTN design, planning, contract management and project management?
      • Presumably NBN Co as an additional 'sunk cost' over and above the existing FTTP plans.
        • This will impact (increase) both service wholesale prices and ROI achievable by NBN Co.
  • What is the ACCC's view of the proposed ownership and access arrangements?
  • Will the FTTN-NBN work off the current 121 ACCC approved "Points of Interconnect" or from a subset o the ~1200 Existing Exchanges?
    • Keeping the existing network design and PoI's, predicated on a pure-Fibre solution, is not technically feasible.
    • Renegotiating the subset of Exchanges with the ACCC will not be quick or easy.
    • Organising competitive backhaul links, not just Telstra, within the new network will be expensive and time consuming.
  • What happens to suburbs, especially new ones, connected via Telstra "RIM"s, nodes providing Telephone + ADSL?
    • Is Telstra entitled to an additional payout for these stranded assets?
    • Will the existing Telstra fibre to RIM's be used?
      • If so, under what terms?

Monday, 24 September 2012

NBN: Coalition cannot cost its proposal

Malcolm Turnbull has finally addressed just what he meant by "sooner, cheaper" in an ABC radio interview and an article based on the interview. [Update: 7:30 Report Interview, Coalition B'band Survey]
TONY EASTLEY: The Federal Opposition says it won't be able to provide a fully costed broadband policy by the next election but its plan will be cheaper and completed sooner that the Government's National Broadband Network.

The Opposition's communications spokesman Malcolm Turnbull says information from a survey to be launched today will help a future Coalition government decide which areas to prioritise for faster broadband services.

NAOMI WOODLEY: How long will it take for the Coalition network to be rolled out? NBN Co's timeframe is around 10 years. Yours is sooner, can you say how sooner?

MALCOLM TURNBULL: Well it will be a lot sooner. But let me just first say that NBN Co says its target is 10 years. There are many people in the industry very close to the NBN who believe it is more likely to take 20 years.

The approach that we will take in most of the built-up areas of what's called fibre to the cabinet or fibre to the node, the experience around the world is that takes around a third of the time of fibre to the premises, sometimes even less.

The prioritisation of roll-out based on a self-selected consumer survey is something new, and might give us some new information.

Otherwise, it's only more Political Spin, akin to "Trust me".

There is the Iron Law of Project Management: "Cheaper, Sooner, Better: choose any two".

Mr Turnbull can't both deliver fast broadband cheaper and sooner - unless he's banking on the FTTN to be radically cheaper (the 2005 Telstra figures of ~$4B for 6.5M connections @ 12Mbps, 20,000 nodes).

The flaw in that plan, the one that sunk the Rudd/Conroy tender for an FTTN, is buying or leasing the copper Customer Access Network (CAN) from Telstra. In 2008, that was estimated at $11B, IIRC.

After the Structural Separation Undertaking (not a demerger) by Telstra, they announced they were "spectacularly" agnostic about which Party's plan was used to roll-out an NBN. They are prepared for Mr Turnbull and his FTTN.

Not only is his ADSL2/FTTN solution a not on-ramp to The Information Superhighway, but a Dead-end, it's going to send Rivers of Gold to Telstra leasing their copper.

He's winding the clock back to 2008 and reissuing the Rudd/Conroy FTTN invitation, only this time Telstra have an unbreakable advantage.
Not only will he build a solution to be thrown away well before its "use-by" date, it's going to cost significantly more per megabyte, to use, because of the Access Tax to be paid to Telstra.

Mr Turnbull's claim of "more affordable to users" will only be true if they sign-on for the lowest speed services. That guaranteed 12Mbps will be a tad more expensive that the FTTP-NBN, where 12Mbps is the entry point, not the premium service.

Saying, "but real customers/subscribers don't want more than 12Mbps" is tosh.
Right now, possibly true. But in a decade or two's time, definitely not so.

Why didn't Howard/Coonan demerger Telstra when they had the chance before the "T3" float at the end of 2006? If they had, none of the current brouhaha would be happening.

Should Mr Turnbull fess up that he's been screwed over by the failure of vision of the last Coalition Government?

Sunday, 23 September 2012

NBN: Not so expensive but not as soon as we'd like?

The City of Sydney has an Energy Master Plan for 2030, they'd  like to halve their Carbon Dioxide (CO2) emissions by using Natural Gas (methane) for in-situ "tri-generation" plus turn garbage into methane to help fuel the process (methane has six times the greenhouse impact as CO2).

This snippet caught my eye:
In NSW, electricity networks are undertaking capital expenditure of $17.4 billion over the 5 years to 2013/14. This represents $2,400 per person and an 80% increase on the previous 5 year period.
Scaled up to Australia's population, that's over $50B - considerably more than the NBN's $35-$40B.


For me, this puts the NBN investment over ~10 years in perspective:
  • It costs $1,500-$3,000 per person for any significant infrastructure nowdays.
  • We currently spend about $25B/year ($1,100 per-person) on Defence, a necessary but non-productive expenditure.
  • The yearly per-person tax receipts in Australia are $12-15,000, the $200 per-person to build the NBN is a small fraction of this.
    • $4B/year could've been raised from taxes, but instead it's been funded by Government Bonds, which have to be repaid, assuming it meets its fiscal projections.
The copper Customer Access Network (CAN) was never installed in one go, but built and upgraded incrementally, always paid for out of revenues. Telstra's CAN was never conceived and built as a single-project like the NBN, but many projects and in-place upgrades with many revisions.

This puts the opposition complaints about the NBN in context:
  • The NBN is intended as an investment not expenditure, so naturally lies outside the rest of the Federal Budget Balance Sheet which is solely about income and expenditure.
  • Whilst it is a large investment in total, the yearly spend, especially per-person, is small, less than we spend on Pizza and fast-food.
  • The NBN is an investment risk, there's no guarantee, only a reasonable expectation, it will make a profit or the company be worth anything when sold (2030? can't recall).
    • If it succeeds, and on the basis of the O.T.C. paradigm "People Love to Talk" there's no reason to doubt that it won't, then Rudd/Conroy and Gillard/Conroy will be political heros for decades.
    • There are different upside and downside outcomes of the NBN investment economically and politically. It will take one or two decades to know them.
  • Liberal Party "dries" and economists don't like the lack of Cost-Benefit Analysis (CBA) that led to the NBN, but I find that a furphy.
    • What this view fundamentally misses is that Projected Benefits are unknown, uncertain and highly variable due to external factors: things completely outside our control and, like the GFC, sudden and unfoeseen.
      • That said, doing one before starting a business is informative, even prudent, but is only a small aspect of an entrepreneurial venture.
      • The best business people do CBA's but aren't a slave to them.
    • A perfect example from the 2008 crash is the many investment and other businesses who had brilliant Cost-Benefit studies, but failed within six months.
    • 'Twiggy' Forrest's Fortescue Metals Group (FMG) is a case in point. A year ago the FMG Cost-Benefit was unimpeachable, the last week has seen the company stock suspended from the ASX whilst they procured $4B in new loans.
      • The reason the Projected Benefits weren't realised is simple: the Chinese-driven Iron Ore price collapsed.
  • The Coalition face a terrible downside from a hugely successful NBN, one that will haunt them in the electorate for decades. If they were a business, good advisors would be telling the Party to put in place strategies to mitigate the downside:
    • The ALP will not only be seen as "Good Economic Managers" but Great Risk Takers, inverting the normal left-wing/right-wing logic.
    • Having been so strident in their opposition to the NBN what happens to the current Coalition leadership if  Rudd/Conroy and Gillard/Conroy become political heros from its success? They will become toxic politically, a waste of great talent and potential. 
    • The ALP, rightly or wrongly, will be able to claim the high-ground of both "Real Economic Reform" and "A Vision for the Future".
In summary, while the NBN might seem to be "A Great Big Expensive Project", it is a modest outlay per-person and will be seen so in retrospect. Maybe like the Carbon Tax and Mining "Super Profits" scheme are starting to be seen.

Whilst the ALP has taken a risk with the NBN, the Coalition, by deciding to make it a strong point of difference and putting on record many criticisms, has taken on a much bigger downside risk.

If the Coalition gain political power, they will have to address this, either by making the NBN their own ("cheaper, sooner, more affordable") or by ensuring it barely succeeds, if at all. A tightrope I'd not like to walk.

Tuesday, 18 September 2012

NBN: Coalition Policy, still fluid?

In an interview with the Financial Review in late August, Mr Turnbull is quoted saying something I found astonishing and because of the policy consequences, under-reported.

He said the structural separation of Telstra had been expedient for the government but he would have preferred a demerger of its local network business, akin to Telecom New Zealand’s, to encourage the necessary competition for his plan.
There is an earlier (Nov, 2010) mention in the Age of Mr Turnbull preferring a demerger, as well as being mentioned in the hansard in questions on the Joint Committee on the National Broadband Network. Mr Turnbull holds up the demerger of New Zealand Telecom in preparation for their National broadband network as the example of how it should be done...

Whilst Mr Turnbull's site contains many mentions of "Structural Separation", I could find none to "demerger".

Why I find this astonishing is because up until the end of 2006 and the "T3" float by the Coalition Government (Howard/Coonan), a demerger could've been completed easily. But it seemed that the Coalition policy then was firmly against both a common-access national broadband network and any type of structural separation of Telstra.

To my untutored eye, this seems a major back-flip and against the Coalition tenets of "Free Markets" and "Competition".

What do others think?...


Sunday, 16 September 2012

NBN: Digital Convergence and Economic Reform

In the context of the NBN debate and the Coalition's policy, some fundamentals need to be restated.

"Digital Convergence", all Telecommunications services carried digitally, especially when combined with computers, was always going to change the world of the consumer/user.

This was obvious around 1980-85.

What wasn't obvious, is that it was always going to change the landscape for providers.

Telcos around the world are having to face the reality of this restructuring of their business and the consequential Economic Reforms that will be forced on them: especially no longer being price setters, being able to pursue "Traditional Pricing", what the market will bear, not the more usual cost-plus-margin.

We see a National Broadband Network, providers see all their services collapsing into a single link to the customer and a box of electronic magic with their excessive profit margins in fast retreat.

Broadband has become "wallpaper": ubiquitous, standard and unremarkable. It cannot be sold, or priced, anymore as a premium service, but a basic utility.

Remember NEC and it's slogan for Converged Communications? "Computers and Communications"

This page sets a date of 1977 for NEC announcing its "C&C" policy/slogan.
[13-Mar-2013]. This biography of NEC President Akinobu Kanasugi places the genesis much earlier (1950's), but confirms the 1997 launch of the policy/slogan

In the 1950s Kobayashi instilled two beliefs at NEC: first, that long-term convergence in communication and computing technology would inevitably make the two fields inseparable, and second, that by mastering the necessary competencies in those two core areas, NEC would be guaranteed a crucial global market share. Together the two beliefs comprised NEC's "computing and communication"—or C&C—vision.
In a rational world, the 2005 Telstra ADSL2 FTTN was a no-brainer... It would've been an ideal stepping stone to an FTTP, built incrementally, just like the Copper Customer Access Network (CAN) was.

Telstra have followed "Mother England" and tried to wring every cent they can out of the PSTN. British Telecom moved to universally "timed calls"... Nothing is untimed.

But ARPU's (Average Revenue Per User) are necessarily limited for voice:
each person has just one mouth and set of ears.
Instead of going the American route of pre-paying for a selected region (up to whole country), Telstra wanted to go into timed calls, attempting this with ISDN.

But look at the APRU's for mobile, mobile data and fixed-line data:
beyond the wildest dreams of PSTN.

It comes down to a really simple charging formula: access cost + price/bit by time-of-day.

Premium services can be sold with lower-latency, symmetric speeds, lower packet-loss or wider reach. Generally, pay for better 'quality of service', however that's viewed.

Smartphones and video calling demonstrate we've reached price-points where users are prepared to buy these services in spades...

But they are predicated on a single price/bit.
  • And in that world, what does a voice-call cost?
  • Next to nothing... So VoIP costs here are dominated by the PSTN interconnect fee.
The lesson here.

The Telstra management culture followed the British in not just "milking the cash cow", but "killing off competitors". Unkindly, the approach Microsoft took that's seen it stagnate for a decade now.

Whereas a simple analysis that took into account the Silicon Revolution and Moores' Law would've informed an approach like Apple's:
Be prepared to let go of the current Sacred Cow and embrace the next evolutionary step.
With the caveat, 'hold your convictions lightly', be prepared for your Next Great Hope to fail in the marketplace, and if it does, tweak your new thing and invent something else.
Proof: Palm, Blackberry and now Apple...

Palm discovered the consumer price-point and form-factor that Psion and later Symbian missed for a decade.
Blackberry discovered first with business people, then with residential customers, that fully mobile messaging in a compact form-factor was a game changer.
Apple, with the iPod, Macbook Air, iPhone and iPad have been redefining the converged world of connected mobile computing for more than a decade.

More Stories

I was involved in the G3 fax + Telex replacement, Teletex (not text), in 1985. Sank without a trace within 5-7 years, along with G4 fax over ISDN... While G3 fax and Telex are still plodding along, 25 years later.

Typical Telstra marketing stuff-up:
  • they didn't just price it as a 'premium' service,
  • they priced it (well) above the existing service when the input costs were substantially lower.
Which is why we got the retail Internet via voice modems, not ISDN nor direct digital links.
The Internet arrived despite of, not because of, Telcos.
And why we've had to go via ADSL to fast broadband, over the copper used for telephones.

This was the same way that we got G3 fax into business...
I was at OTC in 1984, the year G3 broke-through internationally. The constant tones killed the Circuit Multiplication Equipment (CME) they used for voice, which is why they need to create another access number (0014).

G3 fax @ 9.6kbps, half-duplex, should've been a bonanza for International Telco's if they cooperated by installing digital mux/demux equipment at either end, but this was a user-initiated revolution that took the Telcos by surprise.

On a single full-duplex 64kbps cct, they would've been able to carry 12 simultaneous fax calls, with a little room to spare. Or on a 2Mbps ctt, 425 (14 times) fax calls without compression. Maybe 30%-50% more with some compression. All the useful parts of the G4 standard (compression, CRC's/retransmit, colour?) were pulled back into the G3 standard.

And with that 0014 access number, they could've also charged a 10-20% price premium because they could guarantee both a higher connection speed and lower noise. Something that users would work out pretty quickly - cheaper total cost per page.

This is the model that Telstra needed to adopt in 1986 for the "Fax killer", Teletex. Cost-plus-margin pricing, not "Traditional premium pricing".

Recently I asked a mate who works from home if a fax equivalent to VoIP would be interesting to him. NO!!! Just use email. G3 fax is being finally killed by email, not any of the CCITT/ITU-T replacement standards.

Not because those standards weren't
 a) good
 b) at exactly the right time or
 c) provided what the market needed,
but because the Telcos with their excessive pricing models killed them.

The Internet won through because of voice modems and the ISP charging model: cost plus margin.

This is a necessary economic reform in a world of Digital Convergence:
where the networks for Computers and Communications are ubiquitous, permanent ('always on') and standard. A bit is a bit is a bit, modulo the quality-of-service parameters for the connection type.
Secondly, the reason the PC killed the Apple II/III and everyone else:
the 'open' bus, ISA, and now PCI/PCIe. And why IBM's proprietary MCA died.

They co-operated with OEM's and hardware accessory manufacturers, didn't try to compete with everyone and lock all customers into their proprietary universe.
This is the fundamental change needed in the Telco business,
economic reform to "cost plus margin" and "open access".
The network is a common utility service, not a premium-price product,
since 1996 when the retail Internet exploded, and 2007 when smartphones redefined the world of Mobile Internet.
NBN Co with a single, wholesale end-to-end IP network is the end of the Traditional Telco model.
Companies like Telstra will fight tooth and claw to preserve their "birthright", but the world has moved on. They can either catch-up or become irrelevant and die.

Our Regulators and Politicians need to legislate and respond to this new world, not to yesteryear.

NBN: Policies - What you do trumps what you say

Mr Turnbull in his recent Response to the NBN Chairman, made some statements about Coalition Policy that I believe are flatly contradicted by the facts.

The Policies and actions of past Coalition Governments have been apparently without vision and supported long-term violently anti-competitive behaviour by Telstra.

The coup de grĂ¢ce was the final sale of Telstra, netting another $15.5B, but without forcing structural separation of the wholesale and retail arms.



This created a technical monopoly in the provision of retail services based on the Telstra wholesale copper network and an effective monopoly controlling national fixed-line networks, by being able to prevent viable new entrants, as they did with the Optus HFC Cable-TV network.

The privatised Telstra appears to me to have been the largest Private Sector monopoly ever created in Australia. This was a very considered and deliberate act by the Coalition. I find it incredible that they were unaware of both the market power the new entity had and the aggression and truculence with which it would unhesitatingly wield it.

I find these comments by Mr Turnbull particularly disingenuous, even misleading:
We support all Australians having access to very fast broadband, but would prefer it be delivered by the private sector in a competitive environment as far as practicable, instead of by a government owned monopoly provider.
The parts I find misleading:

  • "support all Australians having access to very fast broadband"
    • No you don't. If you did, the 2005 Telstra FTTN would've been finished 3 years ago.
  • "private sector in a competitive environment"
    • You've actively supported highly anti-competitive private sector  behaviour in Telecomms.
  • "a government owned monopoly provider"
    • whilst you created the largest Private Sector Monopoly in Australia.

Whilst Mr Turnbull can dimiss the non-action of the Coalition Government over Telstra predatory anti-competitive behaviour in the 1995-1997 HFC rollout as "far, far away, long, long ago", he cannot dismiss their failure to direct Telstra to proceed with its 2006 ADSL2 FTTN plans, and to open that network for resale, exactly as the ACCC had ordered them to do with ADSL1.

The evidence I see, makes me conclude that the Coalition:

  • may not support Government monopolies, but is whole-heartedly behind Private Sector monopolies, as demonstrated by their creation of Australia's largest after the "T3" sale. 
  • supports violently anti-competitive behaviour, especially in Telecommunications, as "Free Market". The abandoning in 2006 of Telstra's ADSL2 FTTN was publicly endorsed by the Minister whilst disagreeing with the ACCC.

These actions by the Coalition need to be contrasted with the reforms introduced by the ALP under Paul Keating. It is clear from the actions by Rudd/Conroy and Gillard/Conroy on Telstra, that the ALP would've only completed a full sale of Telstra after separating the retail and wholesale arms:
... implement far-reaching economic reforms, including the progressive deregulation of the financial sector, the float of the Australian dollar, extensive tax reform and the dismantling of many protectionist barriers. These reforms assisted the expansion of the Australian economy. He was responsible for deregulating the airline and telecommunications industries and for establishing a national framework for power.

... As Prime Minister [1991-1996] he continued his progressive reform program which included the establishment of a National Training Authority, a national superannuation scheme to redress low national savings and labour market and training reforms which addressed Australia's long-term unemployment problems.
The Hawke/Keating governments created the reforms that the Howard Government had the advantage of, which is part of the natural course of the Political Game.

But in what appears to be a stunning lack of foresight or vision and incredible policy position of fostering violently anti-competitive behaviour, they allowed the full sale of Telstra without removing its monopoly powers by not separating the wholesale and retail arms.

What does the Coalition support? I inclined to believe their actions, not their words.

NBN: What happened on the way to the future from 2006?

In a rational world, Australia would've had a 12Mbps ADSL2+ FTTN started in early 2006 and finished around mid-2009. What happened??

Telstra had drawn up detailed plans costed at around $4 billion, exclusive of subscriber line access or rental charges, but could not reach agreement with the regulator, the ACCC.

Did anyone at the time think that it was:
  • A bad idea?
  • Unaffordable to build or for users?
  • Not commercially viable, not in the national interest or not desperately wanted by customers?
Nobody thought it shouldn't go ahead, that is, except Telstra. It'd thrown away 75% this amount on a HFC network to stymie Optus' Cable TV rollout.
Rather than allow other companies wholesale access to the sole Customer Access Network (CAN) in Australia, Telstra refused to play.

The ACCC had laid out its view, as the Independent Arbiter, that there was only room for one CAN in Australia. A view which even the Coalition now seems to think is reasonable.

If Telstra had acceded to this not unreasonable view, it would be sitting pretty now:
  • it wouldn't have been forced unwillingly into a Structural Separation
  • it's share price would not have crashed below $3. (having recovered after the SSU, we know the market wasn't impressed with its intransigence or business model)
  • it would still both own the copper network + FTTN and be collecting wholesale revenues from every ISP in Australia.
  • The cash flow generated would've paid for an incremental upgrade of the network, further locking every ISP into its wholesale network. Either:
    • more nodes and higher speeds from DSL services, or
    • increasingly more FTTP. [mentioned as their 'greenfield' deployment]
Where was the Minister for Communications, Senator Helen Coonan, or the Prime Minister, John Howard?? Batting for Telstra and their outrageous anti-competitive stance.

As the majority shareholder, even at 15%, the legislation gave "the Communications Minister’s power to direct Telstra in the public interest". The Minister had the power to direct Telstra to build its FTTN and to make it available at reasonable wholesale prices, just as the ACCC had directed it with its ADSL1 network.

Did the Howard Government inaction have anything to do with the $15.5B they were to raise in November 2006 with the final "T3" Share offer?
In lieu of any better evidence, I have to think they were terminally ignorant and without vision or blindly by the dollars.

These were deliberate actions supporting unconscionable anti-competitive conduct by the monopoly owner of the copper Customer Access Network, Telstra.

The current mess with Broadband Networks is due entirely to the Policy decisions of the 2006 Coalition government, something entirely unacknowledged by the current Opposition.



Links:

November 2005, Telstra release to the ASX. pages 6-8 have FTTN details.

The Nov-05 document says 4M addresses served by "20,000" nodes 1.5km to premises and one third addresses served directly from exchanges.

According to this document, 5,000' (~1.5km) is the break-even distance for VDSL2 and ADSL2+, though they estimate ~18Mbps not the 12Mbps Telstra used.

Paul Budde on "From the FttN hype to the ADSL2+ reality" and "Analysis of the Telstra Results"


AFR: Coalition’s NBN policy a little clearer
AFR: Turnbull’s cut-price broadband plan

ABC: Could FTTN replace the NBN?

Delimiter: Stop “hiding” your NBN policy, Conroy tells Turnbull


ABC's 7:30 Report Interview Transcript "Telstra jibbing on Australian consumers: ACCC", 15-May-2007.
[Shadow Communications Minister] STEPHEN CONROY: It's not Helen Coonan's job to decide the prices that are going to be set in the telecommunications industry. That's why we have a regulator, that's why we have an independent ACCC.

HELEN COONAN: Well, I don't think I'd call it "circumventing" the ACCC, I think it would more characterise it as accommodating the kind of adjustments that might be needed to enable a new very risky bill that's going to cost in the order of $4 billion. And if the current regulatory regime can't yield that outcome, well then I would look at what might be required.

PHIL BURGESS: As soon as we have agreement with the Government on all aspects, and we have agreement on most of them right now. But as soon as they can work their way through their relationship with the ACCC, as soon as they can decide whether they're going to rein in the ACCC and have the ACCC follow the policies of the Government, as soon as that happens, we'll put all of our prices on the table.

Telstra scraps broadband network plan, Updated Mon Aug 7, 2006 3:03pm AEST
Telstra has blamed government regulations for its decision not to invest in multi-billion-dollar broadband technology.

Telstra was planning to install a fibre-to-the-node (FTTN) broadband network to improve Internet speeds but did not want its competitors to have access to it.

The Australian Competition and Consumer Commission (ACCC) says it is not viable to have more than one network and all telcos should be allowed to use it for a reasonable price.

But Telstra spokesman Phil Burgess says it will not spend $4 billion on the technology under the current regulations.

"The ACCC holds 100 per cent of the decision-making power over the short term and can with the stroke of a pen set prices and make commitments that will advance the FTTN investment by Telstra," he said.

ACCC chairman Graeme Samuel says Telstra is grandstanding and he is surprised by Telstra's position.

"Phil Burgess, with whom we've been dealing, has been saying as recently as a week ago that we were 98 per cent of the way there and there was 2 per cent to go," he said.

"That seems a strange starting point from which to suddenly say that we're terminating the whole proposal."

ACCC 2005-6 Telecomms report
Telstra announced in November 2005 that it was exploring an FTTN upgrade to its network in metropolitan areas. In March 2006, Telstra began discussions with the ACCC on mechanisms for enabling competitors to access the proposed network and for Telstra to receive an appropriate return on investment. Telstra withdrew the proposal in August 2006 without lodging a formal access undertaking.

A second proposal for an FTTN upgrade was later raised by a group of nine carriers. A central feature of this model is the separation of the network ownership and management from downstream retail service provision with open network access on equivalent terms to all access seekers, regardless of their ownership interests in the network. The G9 continued to discuss the regulatory aspects of its proposal with the ACCC in early 2007.

The unresolved status of Telstra’s proposed FTTN deployment, however, risks substantially inhibiting ongoing investments in competing DSLAMs and backhaul infrastructure for all carriers other than Telstra.


Saturday, 15 September 2012

NBN: Comparing competing proposals

At some point before the next election, both Political Parties will have to release detailed, costed plans for their policy on the National Broadband Network.

I believe the essence, for the dual roles of electors and subscribers/customers, is captured by:
  • What's it going to cost now and for the next 10-15 years?
    • Ideally a single current-day dollar figure, such as Total Cost of Ownership (TCO) or Net Present Value (NPV).
  • What am I going to get for my money? (A value-for-money calculation of price/performance.)
    • As an owner of the Network.
    • As a user of the Network
    • Are parts of it a dead-end or upgradeable during its lifetime?
  • How long is it going to last me?
    • Is it built as a "throw-away"?
    • Will it's operational lifetime be significantly less than its replacement period?
Note: I regard network performance as something to be selected. We need to discover what people value, not choose it for them nor declare an intrinsic feature as "fast enough". The market determines the value it places on different aspects of an offered service.

Similarly, I don't regard "what are other countries" to be relevant or useful. We have to make decisions about what we, as a Nation and consumers, want and are prepared to pay for. We have a different collective value system than every other nation: what works for us is our only concern.

The NBN Policies will be long, complex documents heavy with technical content and many assumptions related to finance, economic environment, customer needs and demand, take-up rates and final market penetration.

Australian residents have dual roles in this debate, each role needing different answers:
  • As electors and taxpayers, they are guaranteeing the Government debt if the investment turns sour, and they are deciding which plan to accept.
  • As consumers/subscribers, they will be paying retail prices for the services delivered.
So two those complex plans have to be reworked to be on the same basis, using the same assumptions, and to report figures for both roles of residents.

What are the minimum figures that electors and consumers can judge the Turnbull "sooner,
cheaper and more affordably for users" versus the Conroy "Full Fibre to 93% of population by 2020" plan?

There are already various sets of good questions related to policy and technical matters out there.
I'm not intending to compete with them, but hope I might provide input to comparisons when the time comes. Now, well before the event, is a good time to discuss what we need to know and how to make comparisons.
Some simple questions for Malcolm Turnbull:
  1. How much will your plan cost to the nearest estimated $bn?
  2. What proportion of users will be able to get 12Mbps, 20Mbps, 50Mbps, 100Mbps and speeds above under your plan?
  3. by what year will the majority of households be connected under your plan?
  4. You claim that your plan will deliver fast enough speeds, how fast is fast enough?
An initial set of comparative data:
  • What is the technology mix proposed, with included percentage of premises served?
    • What are the relevant descriptors of each service? e.g. Node Count, DSL type, maximum cable run, ...
    • What is the minimum guaranteed link speed? Download/Upload.
    • What is the guaranteed Busy Hour Throughput by area?
  • (Owner) Profitability of each technology, by area.
    • Projected Time to break-even or profitability, whole technology.
    • Funding sources and Internal Rate of Return. e.g. Govt. Debt, bonds or by revenue.
  • (Owner) For each technology, the Total Cost of Ownership for 10 and 15 years.
    • Telstra/other lease payments or CapEx to acquire existing assets.
    • Lead time for project start for each technology: contractual, supply and install.
    • Estimated project completion time for each technology.
    • Expected ACCC approval time/process.
    • Are these services in use here or overseas?
  • (Owner) For each technology, Planned Operational Life to 50% and 95% replacement.
  • (User) When will it be connected to my house?
  • (User) For each technology, the costs: Access Rental costs, Data Cost ($/Gb), Link Sharing number, Shared Uplink bottlenecks, guaranteed Busy Hour rate, CPE Costs
  • (ISP/RSP/WSP) Restrictions on Access, Costs of Access , Costs of Interconnection, ...
I'm sure this list will evolve considerably over time.




My first cut at enumerating the areas of comparison started with the NBN Glossary of Terms.
I expect this to be more of checklist than anything. i.e. "Do they both address this the same?"

Contractual and Regulatory elements
  • Australian Broadband Guarantee (ABG) - especially guaranteed connection speeds
    • Rural, Regional, Remote access arrangements
    • Rural, Regional, Remote subsidy scheme or single pricing transparency
  • Domestic, Small Business, Business services and obligations.
  • Fault response times, non-compliance penalties
  • Wholesale Broadband Agreement (WBA)
Entities
  • Layer 1-3 Network/ Wholesale Services
  • Retail Service Provider (RSP) - Telstra, phones/PSTN, ULL leasing
  • Internet Service Provider (ISP)
  • Wholesale Service Provider (WSP)
Characteristics of Service Offerings
  • Average Busy Hour Throughput (ABHT)
  • Committed Information Rate (CIR)
  • Peak Information Rate (PIR)
  • Cost per Gb, per time
  • Quality of Service (QoS)
Internal Financial elements
  • Capital Expenditure (Capex)
  • Operating Expenditure (Opex)
  • Average Revenue Per User (ARPU)
  • Compound Annual Growth Rate (CAGR) [underlying model of demand growth]
  • Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA)
  • Internal Rate of Return (IRR)
  • Payback period
  • Weighted Average Cost of Capital (WACC)
Endpoint types
  • Greenfield vs Brownfield
  • Commercial, Business, Residential/Small Business
  • Multiple Dwelling Unit (MDU)
  • Single Dwelling Unit (SDU)
  • Geographical Area
    • CBD, Inner Metro
    • Urban
    • peri-Urban
    • Regional
    • Rural
    • Remote
    • Maritime, Territories
Service Delivery Means
  • Customer Premises Equipment (CPE) [extra cost for a LAN/WLAN, ATA + UPS's]
  • Hybrid Fibre Coaxial (HFC) Network
  • Digital Subscriber Line (DSL)
  • Digital Subscriber Line Access Multiplexers (DSLAMs)
  • microwave; Local Multipoint Distribution Services (LMDS)
  • 4G. Long Term Evolution (LTE)
  • NBN Co Satellite Access Service (NSAS)
  • Public Switched Telephone Network (PSTN) [and ONT's battery]
  • Unconditioned Local Loop Service (ULLS)
  • Worldwide Interoperability for Microwave Access (WiMAX)
  • OPEL - 802.11 WLANs
Services offered
  • Telephony Services
  • Internet Protocol Services
  • Video-on-Demand (VoD)
  • Voice Over Internet Protocol (VOIP)
  • Internet Protocol Television (IPTV)
Network Design Related
  • Network Topology, eg Home Run Topology
  • Regional Backhaul Blackspots Program
  • Shared Topology
  • Transit Backhaul
and more...

Friday, 14 September 2012

NBN: Coalition supports Free Markets not Monopolies

Mr Turnbull wrote a commentary on a speech by the Chairman of NBN Co, "Policy Choices in Project NBN".

Mr Turnbull engages in the usual political rhetoric, specious comments and gratuitous insult, summarised at the end, but does raise two points that need addressing:
  • Monopolies, and
  • Provision of new services during the transition from Telstra to NBN Co., "greenfield" installs.
In a single paragraph, reformatted here, Mr Turnbull makes what I see as a substantial, multi-layered policy statement.
The key words here are “without making the subsidies explicit and transparent.”
And therein lies a very big difference in philosophy.
Not only do we prefer competition to government monopoly, but we believe that subsidies should be explicit and transparent.
We are thoroughly committed to providing access to broadband to regional and remote Australia at city prices –
   so there is no discrimination by reason of geography –
but the cost of doing so should be transparent.
(precedent) What, after all, is the USO?

Monopolies vs Monopoly Behaviour

We have an NBN because Telstra didn't invest in a new distribution network over the last 20 years when it would've cost under 1%pa and wouldn't co-operate with Rudd/Conroy in building an FTTN network in 2008.

We now have the Coalition embracing NBN Co and a National Broadband Network because Gillard/Conroy managed to get Telstra to agree to Structural Separation with the "SSU" in April.

Both sides of politics have created the mess in Telecomms we have now over six decades, but the Howard/Costello government created the monster that is fully privatised Telstra. The "T3" public offering in 2006 was the time to structurally separate the business. Without being answerable to the government as a majority shareholder, Telstra was going to move from being combative, recalcitrant and uncooperative to completely uncontrollable.

The 1995-1997 HFC rollout by Telstra and Optus, which only passed ~2.5M homes, twice, for $7B happened under both Keating and Howard governments.

Both Telstra and Optus wrote-off multi-billion dollar investments to the detriment of their owners/shareholders and instead of getting a viable Cable-TV business in Australia, we got a crippled, woefully inadequate network that didn't support viable content providers.

This is perhaps the ultimate response to Mr Turnbull's rhetoric on "we don't support Monopolies":
Oh yes you do! In Telecomms and on multiple occasions.
There are two threads to unpick here:
  • During the duopoly, Telstra wasn't technically a monopoly, but it behaved as one, attacking and extinguishing competing businesses.
  • There was a massive Governance and Oversight failure by both Political parties in allowing Telstra to sabotage the Optus Cable rollout.
    • Why wasn't the ACCC granted powers to order a "cease and desist" action against Telstra?
    • By defending their "birthright" of the copper distribution network against competition and cannibalisation, at all costs, Telstra pushed themselves into an unprofitable, irrelevant technology backwater.
This action by Telstra as the dominant market player, and still has an almost entire monopoly in the copper distribution network, (TransAct, Internode/Agile, Cable-TV in rural VIC), was deliberate and planned. They are large enough to behave as an effective Monopoly, without technically being one.

In response to Mr Turnbull assertion that "all Telecomms monopolies are Bad" he uses the example of International cables, which is a really, really bad example to choose.

People seem to forget O.T.C. and George Maltby, sacked as head of "the most profitable public utility" by Bob Hawke at Christmas 1988 for granting staff pay rises.

From the 60's introduction of "undersea coax", then satellites, then optical fibre, to their incorporation into Telstra in 1992, O.T.C. was the complete antithesis of Telstra. It cared about Customer Service and Technical Excellence, continually introduced innovative services ("herograms" to Olympic athletes in 1984) and for years won excellence in marketing and advertising awards.

They were amazingly profitable, because they understood three things that Telstra, and it seems Mr Turnbull, do not:
  • People love to talk, the cheaper it is, the more in total they'll spend. Economic Demand-Elasticity.
  • You don't have to act like a traditional Telco Monopoly to be more profitable.
  • If you seek a "local maxima" in profits by "monopoly pricing" and "protecting your birthright", you'll prevent the business getting into new lines of business and achieving profits beyond your wildest dreams.
    • This is the "secret sauce" that has pushed Apple to be the world's most valuable company and left Microsoft stagnating over the last decade. It's what killed Kodak, once the most innovative, high-growth company on the planet.
O.T.C. embraced a marketing driven, customer-centric culture and passed on some of the technology cost savings: every year the cost of phone calls decreased, enough that in 1988 it was cheaper to call New York from Sydney than Perth.

Telstra management have since 1992 actively sought to prevent competition in every area they could. We know from the HFC debacle, what they would've done if anyone attempted to build a Full Fibre network: they would've overbuilt them and undercut their pricing. Exactly what they will do with HFC against NBN Co if they are not restrained.

TransACT invested between $160-$280MM in FTTN and HFC networks in Canberra and regional VIC, and was sold last year for $60MM. Partly, I suspect, because of their own "irrational exuberance" and marketing/managerial approach, like AusSat in the 80's, but mostly because Telstra destroyed their business model: their ADSL pricing was cheaper and had a broader reach.

In answer to Mr Turnbull, we know what can happen when there is a single organisation owning all international cables, we have 45+ years of O.T.C.'s financial results:
  • It's not about Competition vs Monopolies,
  • it's all about Customer-centric business and Good Management.
Which leads into my second point, "Greenfields" installations.

Greenfields: Who's The Bad Guy

Mr Turnbull validly observes that Telstra isn't installing services to new homes and NBN Co and Fujitsu aren't installing fibre - leaving home buyers in many Greenfield developments without any fixed-line service.

But who here is "The Bad Guy"?
My contention is that if Telstra actually cared for customers, it would seek exemptions from the ACCC to install copper services until the NBN Co process is up and running smoothly. While doing so, it could install empty conduit for fibre, and then could even ask NBN Co to pay a premium for those installs.

But they don't. They are deliberately and consciously leaving customers out in the cold.

How can that utter disregard for customers for one of the modern world's most basic utility services be considered acceptable, let alone tolerated by customers and regulatory authorities??

Mr Turnbull's comments

An overview of Mr Turnbull's arguments (slightly reordered).
  • For being a monopoly, which the Coalition don't support in principle.
    • "... denies the dynamic, creative forces which only competition can deliver. A monopoly is always likely to be complacent – there is nothing to stir it to innovate, to improve its efficiency."
    • (on monopolies) "... then there would be only one sub-sea cable connecting Australia to the rest of the world, or at least only one company providing those services."
  • Denigrates without reason or evidence "(their) sheer incompetence and inability to deliver such a huge project in a timely manner."
  • States without targets or historical reference that "thousands of Australians are waiting far too long for broadband upgrades."
  • Raises an important change-over issue that "Australians in greenfield housing estates have no wireline telecommunications at all" (QLD, WA)
  • Criticises the logic of "‘fibre to the node’ ... would not result in the structural separation of Telstra from its retail business which is a key policy objective of the NBN (and one we broadly agree with)."
  • Describes the Coalition plan as "our approach is not FTTN – good; FTTP – bad. Rather we believe a network upgrade like this should be effected in a manner which delivers the objective as quickly and as cost effectively as possible. So one should be technology agnostic..."
  • Disputes that delivering broadband over HFC networks would undercut other NBN pricing and their owners would “cherry pick” service areas and undercut pricing when they could.
Mr Turnbull also dismisses a serious attempt to address how "super profits" might be dealt with. He addresses it as: not going to happen, won't discuss, because they are incompetent... So why mention?


Longer piece at http://stevej-on-it.blogspot.com.au/2012/09/nbn-coalition-support-for-free-markets.html

I made this comment on his blog:
Malcolm, You keep on top of the debate and are continually moving it forward. Excellent work as both a Shadow Minister and prospective Minister.

I’m impressed with your criticisms of the NBN Co rollout. Informed and useful.

Here is not the place to nitpick the Coalition policy. You have one, have made promises that can be evaluated and have publicly committed to continuing a National Broadband Network.

Thanks for being so active in this debate and not allowing the incumbents to be complacent or go unchallenged. Well done.

regards
steve jenkin

Wednesday, 12 September 2012

NBN: Coalition support for Free Markets vs Monopolies

Mr Turnbull wrote a recent commentary on a speech by the Chairman of NBN Co, entitled "Policy Choices in Project NBN".

[Long. 2850 words total, 2000 words of mine]


I made this comment on his blog:
Malcolm,
You keep on top of the debate and are continually moving it forward. Excellent work as both a Shadow Minister and prospective Minister.

I’m impressed with your criticisms of the NBN Co rollout. Informed and useful.

Here is not the place to nitpick the Coalition policy. You have one, have made promises that can be evaluated and have publicly committed to continuing a National Broadband Network.

Thanks for being so active in this debate and not allowing the incumbents to be complacent or go unchallenged. Well done.

regards
steve jenkin
Here are my criticisms of his blogpost.

We support all Australians having access to very fast broadband, but would prefer it be delivered by the private sector in a competitive environment as far as practicable, instead of by a government owned monopoly provider. [italics added]
To characterise NBN Co as a monopoly provider may be correct in a limited sense, but is more histrionics than insight.
Fibre to the home is now a regulated service, overseen by the ACCC. Enterprises like TransACT who are already building their own FTTH have sought and been granted exemptions. A prospective entrant with a good story might be able to convince the ACCC to allow them to compete with NBN Co, but I'd expect with the proviso of "equal access".

The only "monopoly" NBN Co is in the provision of wholesale, not retail, services. The intention is to guarantee a level playing-field for retail ISP's and allow competition and choice for end-users. The ACCC also regulates what NBN Co can charge, this is not a free-for-all.
However (with the NBN Co already established and having committed to significant contractual arrangements) we have to deal with the facts on the ground.
Therefore our criticism of the NBN is focused on the vast expense of its solution and the decade or more that it will take for the NBN to be provided in all parts of Australia
That cost and delay is in large measure due to the decision to deploy FTTP to 93 per cent of premises, although it also increasingly appears to reflect NBN Co’s sheer incompetence and inability to deliver such a huge project in a timely manner.
Before they've even started rolling out in earnest, it's not possible to make that claim. They are only just through the planning, pilot-test and contract negotiation phase.

I also find this statement disingenuous. A decade to wire up 7-10M dwellings seems pretty fair to me.
As another commenter pointed out, The Opera House and Snowy Mountains Scheme ran widely over schedule and budget. The NBN Co plan seems a lot more believable, solely because they are deploying well know technologies. There will be surprises, there will be changes.
One consequence is that thousands of Australians are waiting far too long for broadband upgrades.
As opposed to the multi-year waits for basic phone lines for rural customers?
Or the years that Telstra denied subscribers ADSL2 services when the hardware was capable?
Or the decades I'll have to wait under his VDSL-FTTN plan to get even 50Mbps over the dodgy copper here?
This is rhetoric and noise. A criticism without consequences or creating a measurable commitment for himself.
Even worse, other Australians in greenfield housing estates have no wireline telecommunications at all – as I saw in Queensland and Western Australia last week. Telstra no longer has an obligation to provide wireline connections in estates of more than 100 lots. And as for the NBN Co – well all too often they just haven’t turned up yet and don’t look like doing so any time soon.
This is a real and pertinent criticism: Since the Structural Separation Undertaking (SSU), getting a new connection can be problematic.

But who's The Bad Guy here?

I see this is just yet more poor behaviour from Telstra.
They are playing the "Nothing to do with me" game, pushing all the responsibility and resultant opprobrium onto NBN Co and the incumbent Government.

If Telstra were truly committed to delivering great service and fulfilling customer need, they would've found a way with the ACCC to fill this gap - exactly as TransACT is doing in Gungahlin.
Mr Young argues that telecommunications is a natural monopoly which he defines like this:
“[a natural monopoly] is when one supplier can serve the entire market at a lower total cost than two or more suppliers can. Having multiple suppliers of natural monopoly services is socially wasteful. They make inefficient use of an economy’s resources.
This is why you don’t build two bridges next to each other, expecting that competition will force them to charge lower tolls. With equivalent costs and only a portion of total traffic, each of them will need to charge higher tolls than a single bridge-owner would require.”
The problem with this thesis is that it basically denies the dynamic, creative forces which only competition can deliver. A monopoly is always likely to be complacent – there is nothing to stir it to innovate, to improve its efficiency.
Mr Turnbull has a point here.
There is an inherent tension between having a Monopoly Utility provider and "keeping the bastards honest". Competition in large marketplaces produces the best price and quality outcomes for consumers and makes successful vendors efficient and seeking constant improvement. Government bureaucracies that don't have to worry about any competition, nor have close inspection regimes become very complacent, inefficient and completely insensitive to consumer problems. In Australia, we had a very long history of this in government provided services, like railways and more.

Much like Telstra prior to 1997.
The implication being raised here is "we'll return to the Bad Old Days" because of the single-provider status.

The problem for Australia is we're not nearly densely populated enough to support unregulated supply of Telecoms distribution. It is significantly cheaper and more efficient to have a single customer distribution network here.

The dual Optus-Telstra HFC cable rollout showed that both large Telcos don't care about efficiency and viable investments. They'd rather actively prevent others making initiatives than do anything themselves.

People forget there was 3 Telcos in Australia before 1992: Telstra, O.T.C. and AusSat.
I worked for O.T.C. and they were far more efficient and customer focussed than most of the public companies I worked for. There was a culture of innovation, excellence and customer-concern. This lasted for the nearly 50 years that O.T.C. existed. It wasn't accidental, nor transient.

It is not a given that all Government Business Enterprises especially natural monopolies will descend into the bureaucratic, self-absorbed and inefficient operations we became used to.

Mr Turnbull has raised a very good point: What mechanisms will be put in place to keep them on their toes? To prevent a decline into the cesspit of arrogance and poor customer concern and service.
If Mr Young’s defence of monopolies was taken seriously then there would be only one sub-sea cable connecting Australia to the rest of the world, or at least only one company providing those services. And where would prices be then? Well we know, actually, the introduction of competition in any telecoms network, sub-sea, or terrestrial brings prices down.
This is a "straw-man" argument, it is incorrect.

O.T.C. was a monopoly and for decades had the cheapest, or close to, international calling prices. Even to the USA: people who needed to talk could always decide which end made the call. Our "balance of payments" of call minutes was universally in our favour: many more international calls originated in Australia than were made into here.

Single provider Utilities are not necessarily inefficient, overpriced monopolies. Only one counter-example is needed to destroy that myth.
And that is why, no doubt, that in every other comparable country a central telecoms policy objective is to promote facilities based competition where this is possible (typically built-up areas). I am not aware of one other country where the policy is to actively stamp it out.
Again, more verbal entertainment, not enlightenment...

The Elephant in the Room is: that left to their own devices, Telcos in competitive markets haven't installed Full Fibre distribution networks, though they fully converted their long-distance and internal networks a decade or more ago.

Why is this??
If the Free Market and maximum competition is so good and so efficient:

  • Why didn't Telstra start deploying fibre to homes by 1995?
    • If they didn't deploy the fibre, why not an incremental upgrade program of installing empty conduit into which fibre could be inexpensively installed later?
    • An incremental upgrade program, like Y2K, would've had an almost zero marginal cost spread over the last 20 years.
  • Why have so few Telecos overseas deployed residential fibre, versus business services and CBD?
The question for Mr Turnbull to ask is why, in the most competitive and hence "efficient" marketplaces, have Telcos not converted to full fibre distribution networks?
Why have sections of Korea, Japan and I'm guessing Singapore done so when they usually have State owned Telcos?

I think the answer is simple economics:
When all your competitors are using the same technology as you, you all have around the same cost structures, similar margins, similar cost of finance.

Because of the high cost-of-entry and guaranteed low-initial consumer take-up rate due to contracts and conversion delays, no single Telco will ever see an attractive Rate of Return on such expensive investments. After all, it took a century or more to arrive at our current network in an incremental fashion.

Even for dominant or sole-supplier Telcos, they have no economic incentive to change technologies.
Each year they can change-out just a little of their degraded copper, raise prices just a little to cover increased maintenance and continue "Business As Usual".
Replacing the full distribution network with a new technology (fibre) doesn't buy them more customers, lower input costs by 10-fold or increase revenue dramatically: but it comes with an unacceptable price-tag: a huge, single-shot investment that pushes up input costs radically.

This is exactly the same upgrade/conversion problem that organisations face with large I.T. Infrastructure investments like mainframes and storage arrays. The costs of conversion are so high and the impact so pervasive that the incumbent vendors can always pitch an upgrade just a little bit cheaper than a technology swap... The frog-in-boiling-water syndrome: slow, incremental changes are tolerated, leading to quite untenable and undesirable outcomes.

Mr Young goes on to criticise ‘fibre to the node’ on the basis that it would not result in the structural separation of Telstra from its retail business which is a key policy objective of the NBN (and one we broadly agree with).
A Coalition policy point.
However if, as he notes, the last mile of copper is acquired (or leased) by NBN Co then it is part of an NBN wholesale network – separate and distinct from Telstra’s retail business. This does not undermine the structural separation objective anymore than does the NBN leasing Telstra’s ducts.
On FTTN, it should be noted that our approach is not FTTN – good; FTTP – bad. Rather we believe a network upgrade like this should be effected in a manner which delivers the objective as quickly and as cost effectively as possible. So one should be technology agnostic – and use FTTN, FTTB, FTTP were each makes the most sense both in terms of time and dollars.
This is evasive and just a "motherhood statement", not an informed financial or technical one.

"We'll just do it cheaper because we'll consider more options."... Tells us nothing, makes no testable guarantees, gives us nothing to check and model.
He justifies the NBN Co paying Telstra and Optus not to use their HFC networks on the basis that he says the HFC networks serve the most affluent communities and that if NBN Co did not build into those areas it would lose valuable revenue opportunities. In addition, if the HFC were allowed to compete, its owners could “cherry pick” – charge lower prices in the most attractive HFC areas and undermine the NBN Co’s ability to charge a uniform national price regardless of the cost of serving particular areas.
I was pretty convinced by Mr Young's arguments, both technical and economic. I don't see anything here that makes a good case otherwise.

HFC (Hybrid-Fibre-Coax) is an obsolete technology and being a shared medium, like the abandoned Opel wireless network, suffers congestion problems when not used to deliver common data (Cable TV) but independent data streams (Internet). It's your last choice for anything but sparsely populated areas.

There's a reason that Korea and Japan didn't deploy HFC, but direct fibre. It's not a good deal.
That's the same reason that both Optus and Telstra didn't upgrade their HFC to blindingly-fast Internet, especially when it was deployed in exactly those areas that were interested in "fast" broadband, and could afford to pay premium prices.

If upgrading the existing HFC cable-plant to "fast" broadband was a great idea, it would already have been done. Twice: once by each Telco.

Mr Turnbull might be confusing Australian Cable-TV with the network providers in the US moving into the broadband market. They had deployed their cable much longer than us, had significant market penetration and the Cable-TV companies figured they could out compete Telcos in specific niches. It's why we don't see the rural and regional areas there being served by HFC-based broadband: it has very limited technical and economic viability.
In conclusion he (Mr Young) writes:
“If the national broadband network – even if entirely owned and operated by NBN Co – is a patchwork of fibre-to-the-premise, fibre-to-the-node and upgraded HFC, with different end-users getting different levels of service, avoiding cherry-picking could become much harder. This in turn could drive NBN Co to pricing its services with more reference to the cost to serve particular geographies. That would represent a major policy change which could make it impossible to serve the most expensive geographies on a price-equivalent basis without making the subsidies explicit and transparent.”
The key words here are “without making the subsidies explicit and transparent.” And therein lies a very big difference in philosophy. Not only do we prefer competition to government monopoly, but we believe that subsidies should be explicit and transparent. We are thoroughly committed to providing access to broadband to regional and remote Australia at city prices – so there is no discrimination by reason of geography – but the cost of doing so should be transparent. And there is plenty of precedent for that. What, after all, is the USO?
Telco competition has failed us in Australia spectacularly for the last 20 years, why are they still wedded to it?

Australia for Telcos is a few very concentrated and profitable puddles surrounded by mostly empty desert dotted with far too many unprofitable and annoying little puddles.

You would not choose to serve 90% of the Australian Population with fixed-line services if you didn't have to.

Left to their own devices, any Telco who rolled out "fast broadband" of whatever flavour, would make the same decision.

Australia is a democracy and we value "A Fair Go" - which includes equitable access to communications everywhere.

Governments need to enforce a Universal Service Obligation on all Telcos, or it wouldn't happen.

"we believe that subsidies should be explicit and transparent" - I can't fault this logic or ideological position, but it does imply that "someone" (the Government) would reimburse regional, rural and remote subscribers for "excess charges".

I can't see how that would continue working equitably: it might start off being fair compensation, but overtime these things have a habit or becoming under- or over-compensated.

But explicitly breaking out the subsidies: yes, we as taxpayers need to see those.
Mr Young ends his speech with a discussion of what the NBN Co should do when it earns mega-profits – pay higher dividends, or cut its prices? Since he acknowledges this particular conundrum is “perhaps far-fetched” I will refrain from commenting other than to say, the challenge of how to deal with NBN Co’s massive cashflow surpluses is one that is not causing me to lose any sleep.
I find that a cheap shot and would've expected a lot better from someone of the calibre and experience of Mr Turnbull. He's successfully implied the contradictory: "it's a massive boondoggle" and "it won't be profitable".

NBN Co has yet to contend with profits, let alone large ones, as Turnbull notes.
Mr Young was being candid and honest by presaging an important question:
Your projections for high-speed service take-up have already been significantly exceeded. If this goes on, won't you be making more money and what will you do if you face that problem? [my words, not Mr Turnbull]
Yes, they will: and they'll use it to avoid raising debt, speeding up the deployment and paying more back to the taxpayer.

That sounds reasonable to me and good, prudential management. Worthy of an accolade, not a brickbat.