Tuesday, 23 April 2013

NBN: Coalition is in the box-seat, should it choose to "fine tune" policy in light of latest NBN cost figures

Since the NBN Co released more detailed figures for the latest Joint Committee meeting, the Coalition has been put in the box-seat, if it can tear itself away from its current policy position.

The Coalition has options, whereas Labor is locked into a "all or nothing" position. Turnbull can plan to transition to full-Fibre over time, exploit savings where available, enjoy the benefit of deferred investment and introduce new policy elements, such as standard connection & upgrade fees.

The trouble with the future is: nobody knows what's coming. The Rudd/Swan post-GFC budget promise of "we'll absolutely return to surplus in just 5 years" proves the point. Treasury's modelling was good, but ultimately they missed: there are external factors outside the control even of politicians.

Ultimately, the problem for both political machines in forming Broadband policy is a lack of data.

By the end of 2014 or 2015, there will be sufficient data on consumer demand, product preferences, price sensitivity and demand elasticity to make good policy choices, assuming the global economy doesn't fall off a cliff again. If NBN Co turns into a River of Gold, and who can prove it won't, an incumbent government can choose to sell it early, speed up the roll-out or enjoy the income.

Disaster planning is another topic entirely: it comes down to technical and financial hedges and risk mitigation. The Coalition has flexibility, Labor has only a single-choice. Guess who can better deal with "unforeseen economic circumstances"?

The Coalition can now:
  • Modify its plan. Already the Coalition has flagged "we'll do whatever is cost-effective, reuse assets wherever we can", allowing it to modify its plan in the light of new data:
    • If the cost of fibre is closer to $1400/premise after the Telstra payment, than $3,600, it means much less copper remediation is needed, lowering overall project price.
    • This allows the Coalition to both roll-out more Fibre and lower, or maintain, its budget, because the cost-barrier for "fibre or not" is considerably lowered.
  • Nobody should be expecting Government handouts or subsidies from either side in the current economic climate. The high A$ is challenging industries right across the economy, from Mining to Fruit Canning. Because its driven by "Quantitative Easing" by other countries, it's beyond our control and won't improve for quite some time.
    • The Coalition can remove the biggest downside for consumers (and its weakest policy point), an unknown, variable cost to upgrade to Fibre with a guaranteed connection fee, cheaper if "done in bulk", and
    • challenge the Labor position of "Connect to the NBN for Free".
      • The Coalition can easily justify the NBN is not free and a co-payment is necessary. 
      • At a stroke, they maintain their credentials as "fiscal realists" and introduce a new source of funding.
      • How much an on what terms should NBN connections be is a policy matter for them.
  • Nobody disagrees with Turnbull that DSL provides the cheapest broadband, but only in very limited circumstances. Fibre is cheaper than DSL in some cases, e.g. low-density, rural areas.
  • Nobody disagrees that DSL is a good transition technology: it leverages existing assets when the downside isn't too large.
  • Nobody disagrees that full-Fibre is currently the best choice for fixed services over 100Mbps.
  • The upshot of this is that by carefully choosing where to deploy DSL & Fibre, highest density, lowest cost urban areas, an optimal transition, with maximum flexibility, can be planned. It won't come at a premium, but cheaper than either current scheme, neither of which is optimal:
    • By running Copper and Fibre roll-outs together, work-forces with different skill-sets can be engaged, hopefully meaning a faster overall rollout.
    • Spending an extra $3 billion on laying GPON capable Fibre loops past all premises initially, saves $5-$10 billion in copper re-configuration and remediation/rehabilitation costs.
      • You'd think that just running the local loops would be cheaper & faster than doing the full premises external connection as well.
    • Deploying the 2005 Telstra plan, ADSL2+ @ 1,500m, in selected areas, would be fast and an immediate benefit to those stuck below 4-5Mbps while reducing remediation costs.
    • That same network can later be augmented more nodes at 800m and upgraded to VDSL2.
      • That plan only works if rollouts aren't done piecemeal, but like a production line.
    • There is ample time and need for an optimum roll-out study and plan. It needs to identify:
      • The Inner- and mid-urban areas with good enough copper and high enough density to achieve absolute lowest-cost VDSL2 at 400m and 800m. Those services could reasonably be expected to rise to 100Mbps and stay in-service for 10+ years.
      • The areas where ADSL2+ at 1500m will deliver good improvements for minimum cost. While cheap and quick, this would only be a stop-gap measure of 3-4 years.
      • The highest cost areas for DSL with most to benefit from Fibre, can be identified and scheduled for early roll-out.
  • By not having to rush to 100% full-fibre roll-out, the Coalition gets time to assess external factors, consumer demand and usage and avail itself of new developments, in DSL and Fibre.
    • That has to be a win-win situation for them and a path not available to their opponents.
I've previously laid out that a large DSL roll-out, especially with hidden connection costs, like the NTD, and compensation due to compulsory acquisition of income-producting assets have a large number of issues to be resolved. Hopefully, many of those issues would be less contentious in a optimised planned-transition to full-Fibre.

1 comment:

  1. If we could get a commitment out of the Coalition that no new copper be laid. That would be some sort of reassurance.

    By this I mean if the copper to a particular premises is not up to spec for VDSL then it is replaced with Fiber for the whole street.

    But if they did this the cost saving benefit of a large coordinated roll out are lost.

    The only hope that I have is that if the Coalition is voted in that they take 3-6 months to investigate and then find that the flexibility that you mentioned is used to say that FTTP is not such a bad thing and now that we know the full costs it is easier to move forward with the plan in hand.
    With the fiscal change that people make a co-payment towards connection as per your suggestion.

    As long as they can rebadge it as a coalition project and that it really has nothing to do with that Labor NBN (nudge nudge wink wink) they will probably be happy.


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