Tuesday, 30 July 2013

NBN: Kohler v Turnbull Questions - Top Ten.

Alan Kohler will be debating Malcolm Turnbull on the future of Australian Telecommunications. These are questions I'd like asked. Getting straight answers would be another matter.

1. There's a very specific figure for FTTN (Copper) Fixed Line rollout of 8.968M premises.
  • How did you arrive at that figure?
  • Is that all the Metropolitan areas?
2. There's a lot in your Policy about reusing existing assets, mostly owned by Telstra and Optus, and changing the rules to allow Cherry Picking, while the current rules allow any wholesaler to provide Layer 2 services at Points of Interconnect.
  • Do you expect Telstra to take advantage of your new arrangements and roll-out new broadband services across all Metropolitan areas?
  • Would the Coalition consider contributing to such a rollout, either directly or through NBN Co?
  • If Telstra took on the FTTN, maybe with HFC Cable too, would you direct NBN Co to not compete with Fibre in those areas?
3. Your Broadband Plan is really only half a Plan, it says nothing about it's most important second part: the replacement of FTTN/Copper network with a full FTTP network, mentioned a number of times.
  • Who's going to do that second phase?
  • Who's going to pay for the eventual rollout of FTTP?
  • If your eventual aim is an FTTP, do you save enough with Telstra's Copper to make this cheaper?
4. Your Plan includes "Total Funding", while your modelling must have also given you the other 3 standard numbers: Project Lifetime, Return on Investment, Time to Break-even.
  • Can you tell us what those numbers from your model are?
  • Was there a reason you didn't include them in your Plan?
5. Your Plan, and stress-tests of the current NBN Co Plan, specifically limits NBN Co to real revenue increases of 3.5%.
  • Will that be a direction to NBN Co?
  • Is there some policy reason for this?
  • If NBN Co does reduce its charges accordingly, then what does your modelling suggest happens to their ROI and profitability?
  • Isn't this a gift to the private sector Retailers who have no obligation to pass on any of those savings?
6. In early April, NBN Co released updated, detailed figures on their costs and rollout. You didn't update the figures published in your Plan from your modelling.
  • Do you accept the NBN Co figures as credible? If not, why would you doubt a competent, independent, professional organisation?
  • Did you rerun your modelling with the latest NBN Co data, especially your estimate of $3600 per service for Fibre?
  • If the results were different, is there a reason you didn't update the figures in your Plan?
7. You've been critical of the Labor government's ability to "execute" for the NBN and many other projects. Given that you will have to use exactly the same prime contractors and sub-contractors, and that you've said that current problems stem from NBN Co forcing the prime contractor to bid too low, then:
  • Will you be paying those prime contractors more?
  • If so, how will you bring in your project on-time, on-budget and to spec?
  • What will you do differently than the current Government, given that NBN Co is actually running the project and signing contracts?
8. We all know that the outcomes in any Business Plan depend on the assumptions you make and the data you use in your model. In your model:
  • What Copper Fixed Line Access Charges (AVC) did you model?
  • What traffic growth model did you use to arrive at a "reasonable" 3.5% real growth in revenue?
  • What traffic distribution model did you use to explore the impact of substitution by 4G wireless competitors?
  • Did you model the effects of price undercutting by Copper services, an area identified as High Risk in the NBN Co 2010 plan?
9. Those lucky enough to get Fibre have an NTD provided with 4 data-ports and 2 voice-ports, while your "No Disruption" promise for your FTTN/Copper solution provides the user nothing, the same as current ADSL services.
  • If a customer requests a VSDL2 NTD, will you provide them one? Will that cost them anything?
  • Are there extra customer costs for a typical FTTN/Copper service over and above a standard Fibre service? Such as a central splitter and VDSL2 modem?
  • For your FTTN/Copper service, will you be charging different amounts for ADSL2, VDSL2 and VDSL2 with vectoring?
10. Your Plan relies a lot on terms like "Cost Effective", "commercially viable", "commercially feasible" and "commercial factors (or reasons)". Customers need certainty, Retailers need clarity to form marketing plans and discuss them with clients, and NBN Co planners and designers need precise, detailed definitions of what is above or below the cut-off.
  • Do you intend to publish a full or partial contents of your "Commercial viability" rules?
  • How will you know if NBN Co is following your rules, if the final FTTN design comes out somewhat different to your modelling, which as we all know, has to make assumptions and estimates?

NBN: part 2 The commercial innovation of NTD multiple porting

In part 2 of this response to Simon Hackett's suggestions for the NBN, we move to Network Quality of Service (QoS), Access Virtual Circuit (AVC) and Connectivity Virtual Circuit (CVC).
If you missed Part1 you can see it here.

QoS (Network Quality of Service)

QoS refers to the how data packets are sent through networks: which go first, which wait and which get thrown away. The aim of this is to give better delivery times for specific types of traffic like voice or video streaming. QoS is not a "guarantee", only a priority. The implementation of QoS with copper line ADSL networks  is about guaranteeing transmission rates, error rates and other specific characteristics of network traffic. Simon asserts that with using fibre all the way to the premise (FTTH/FTTP) the abundance of bandwidth in the GPON renders QoS pointless.

Simon's criticism is correct and valid, paraphrased as: "Within the NBN CAN (Customer Access Network) there is no need for QoS prioritisation, because there should never be significant congestion and queues to address." Yes, and that is what the NBN Co docs say they'll do.

NBN Co make it clear that they add QoS 'tags' to customer packets at source (the NTD), not for their network, but for the RSP's. QoS is to allow the RSP to buy smaller CVC's (pay less), smaller backhaul (pay less), creating some congestion/queuing in peak-times whilst being able to trivially provide different grades of service to customers (charge more).

QoS and packet prioritisation is solely there for the benefit of RSP's. They get to minimise costs and increase their revenues. If I was an ISP, I wouldn't argue against it... QoS puts in place a means to ensure good performance of critical services into the future, thereby guaranteeing consistency to all parties.

With slower and more unreliable DSL networks, QoS is much more important for time-critical services, like voice & video streaming, on Copper Networks (FTTN).

Tiered AVC Charges & lower CVC (Volume) Charging

NBN Co sells wholesale services only. These services are purchased by Retail Service Providers (RSP's) who then offer access services to individual customers. To identify their traffic within the NBN, each RSP purchases an "Access Virtual Circuit" (AVC). RSP's generally purchase one AVC per customer. NBN Co is charging these AVC's out in multiple 'speed tiers', where the faster the speed supplied, the higher the charge.

Multiple AVC is a brilliant commercial innovation on the part of NBN Co, soundly based in Economic Theory and of real value to RSP's: they can charge different clients more for exactly the same physical service.

Look at Exhibit 8.5 of the NBN Co Plan: they charge between $24 (12/1) and $150 (1000/400) for the same physical line. The RSP can just add their margin, or charge a premium for higher speeds, and the presumed higher downloads that go along with it. Like iiNet, they can raise the per-GB price of included data for 'premium' plans.

In Economics, this is called reducing Consumer Surplus, or "not leaving money on the table". Nobody is forced to pay higher AVC charges. Customers are able to put a dollar figure on what the extra access rate is worth, to them. Providing customers with a choice of models, to express their preferences and willingness to pay, is fundamental to the consumer goods business. It's great business to abandon the current ADSL single-fee model.

But it doesn't stop there: NBN Co will reduce the AVC charges over time. By 69% for 100/40 and 82% for 1000/400 in 2040 (nominal, not real $). [Exhibits 3-1 to 3-3 of April 2013 and Ex. 8.8 of 2012 Plan]

And it gets better: The NBN comprises multiple "Connectivity Serving Areas", each with a PoI (Point Of Interconnect) where RSP's connect their backhaul links. RSP's purchase a CVC (Connectivity Virtual Circuit) at each PoI they wish to serve. The CVC is a pipe, the size (bandwidth) determined by the price ($20 per 1Mbps).

NBN Co will reduce CVC charges as average monthly volume increases, not total volume. [Exhibit 8.9 of 2012 Plan]. RSP input costs from NBN Co will halve after 3-4 doublings in traffic. At current rates of growth, that's before 2020.

What Simon didn't raise is that the willingness of consumers to buy premium plans is higher than the rate NBN Co reduces prices (32% @ 100/40 not 18%), prompting them to bring forward higher rate plans (read more profitable) up to 1000/40. [Exhibit 4.3, April 2013]

This benefits RSP's as much, or more, than it benefits NBN Co. They not only increase revenues, they can increase their Gross Margin (EBITDA) as well: consumers are showing their willingness to pay a premium. Building on that is good commercial practice.

Not only have take-up rates and high-end AVC's exceeded forecasts, but average download volume is 50% higher than the Australian average (45GB/mth vs 30GB/mth) [Exhibit 5.2, April 2013]. That's more revenue and potentially higher Gross Margins for RSP's as well. Exhibit 5.1 [April 2013] shows that fixed-line download volumes are growing solidly and at much higher rates than mobile data: Fixed-line is where the money is to be made.

Exhibit 7.6 [2012 Plan] shows that independent experts are forecasting this continuing exponential growth in demand to continue well past 2040. [That's a log-scale, not linear, of speed. Even line is ten-times more than the last.]

Could it get any better? I think so...

The high take-up rates of 100/400 [Ex 4.3, April 2013] coincide with the Sandvine traffic distribution graph [final graph]: 1% of users account for 10% of traffic, while the lowest 50% of users account for 6.4% of traffic.

If the overwhelming majority (~95%) of your demand is from high-end customers, who self-select their willingness to pay a premium and on which you can make higher Gross Margins, do you throw away that business and ignore the premiums? No, it's not good business.

RSP's can afford to lose 50% of their customers, the low-end, to mobile competitors and it will increase both their ARPU's and their Gross Margins. I don't have the data to say if demand growth rate will increase as well.

In answer to Simon: NBN Co has already given RSP's decreasing volume charges, but has also gifted them increased revenue (tiered AVC's) and allowed them to differentiate premium customers and increase Gross Margins. Neither of those are available, or possible, under a single-rate DSL/FTTN regime.

This commercial strategy of introducing premium products at high Gross Margins, then steadily reducing the price and Margin as new higher-spec/feature products are released over them is well established. It's the enormously successful Apple Strategy.

Charts [click to enlarge]
Simon's calculated ARPU
NBN Co 2012 Plan

NBN Co 2012 Plan
NBN Co April 2013

NBN Co April 2103

NBN Co April 2103

NBN Co April 2013

NBN Co April 2103

NBN Co April 2103

NBN Co 2012 Plan

NBN Co 2012 Plan

NBN Co 2012 Plan

NBN Co 2012 Plan

NBN Co 2012 Plan
Sandvine, 1H 2013


April, 2013, NBN Co report to Joint Parliamentary Committee


Aug, 2012, NBN Co Corporate Plan

Sandvine Global Internet Phenomena, 1st half, 2013 [Graph for North America]

NBN: Turnbull a New Age Luddite?

Is Turnbull a 21st Century Luddite? If he succeeds in his mission to "Destroy the NBN", then just like mobs in the early 1800's destroying textile machines, the answer is a resounding, Yes!

There have been any number of basic technology changes, not only in our lifetimes, not just back to the "Industrial Revolution", not just in the Iron & Bronze Ages but all the way back to the first ancestors of genus "homo". Optical Fibre has replaced Copper where it matters in long-haul and back-end over the last 25 years, the "last mile" is the last part of the puzzle.

Opposing, not facilitating, this inevitable step-up in technology is as mindless and stupid as opposing the change to jet engines in the 1960's. The arguments are identical: "petrol engines are really high-tech!", "they're proven!", "all the cool kids are using them!" and "we have to use existing assets cost-effectively" and "consumers want choice!".

Jets displaced petrol engines in airplanes, creating a whole new era of air-travel and freight: safer, faster, cheaper, more comfortable and more reliable (higher payloads, flying over weather, better electronics, 10+-times better fuel economy...). Looking back, why would anyone have questioned the transition?

Turnbull appeared on ABC Shepparton Radio (transcript) and multiple times mentions the VDSL/FTTN projects by local versions of Telstra, said they know better than us in Australia:
I mean, are the Germans idiots?  Are the British idiots?  Are the Americans idiots?  Are the Belgians idiots?  Are the Austrians idiots?
Every single one of those examples are NOT relevant to us: incumbent Telcos are rolling out broadband. NBN Co is a new entrant with no existing infrastructure or assets.

The key difference, and Turnbull is fully aware of this as he mentions it often in his Node Plan, is that only in Australia is the Broadband rollout not being done by the local version of Telstra. When you have to pay for access to existing infrastructure, around half the cost of connection, there is no choice between copper and fibre.

If, like Telstra, you already own the Copper and everything associated with it, extending it's life and not spending 25% more running fibre is a good idea. Why? Because you can charge customers twice. Once for the Copper, then again in the future for the "upgrade" to fibre.

Either Turnbull does NOT understand the economics of incumbents, like Telstra, rolling out Broadband, or he does understand it fully and is being purposefully disingenuous  and misleading. It cannot be otherwise.

Turnbull is either uninformed and incompetent or knowingly "spinning" the truth for his own ends.
Neither of these options qualifies him as suitable for a role as Minister of the Crown. This is not a courtroom battle, the future of Australian economic competitiveness at stake, no less.

Monday, 29 July 2013

NBN: Spelling out the consequences of "Telstra takes Metro"

Previously I've wondered if the Turnbull Node Plan is actually "let Telstra use RIM's and HFC Cable to own all the Metropolitan areas".

Telstra, as long it as a wholesaler provided Layer 2 access at the PoI's, would be able to undercut NBN Co in the cheapest to build and most profitable regions and not have to provide any high-cost services: they get to maximise revenue and minimise expenses. That's a great deal for Telstra, but very poor for subscribers - it likely robs them of choice.

Telstra only has to beat $24/month for 12/1 Mbps. It could offer $18/mth for ADSL2, $21/mth for VDSL2 or HFC Cable and $27/mth for VDSL2 with Vectoring. It could even go back to offering access at different prices in different places. Lower near the CBD, higher on the urban-margins.

If the Turnbull Node Plan really becomes "let Telstra take Metro" then it cannot be held to its published Broadband Plan. All the Copper services (DSL/FTTN) simply evaporates from the spreadsheet. NBN Co become a collection and connection service for Telstra, making almost nothing from 75% of Fixed line services.

It would be within the power of the Communications Minister to direct NBN Co to not offer, or plan, services to areas deemed to already have adequate "very high speed" broadband available. In fact, a competent NBN Co CEO and Board would probably model the impact of wide-scale Cherry Picking, already flagged as a major Risk in the 2010 Corporate Plan, and examine the impact of access prices being undercut across all Metro areas.

The mass roll-out and volume drop install would have to be re-examined in those areas. At the very least, they would go back to "On-demand" drops - over twice the price per premise. Could NBN Co survive on just 1%-5% of Fibre Access in Metro regions? Not if they didn't require long-term contracts and place minimum speed (50/20 or 100/40 Mbps) conditions on the service.

The NBN Co business model of "single wholesale price" was always predicated on subsidising the expensive connections (particularly Wireless and Satellite) with the cheaper end of mass Fibre. This goes out the window if 75% of their Fixed Line market is removed.

The question is not then "will Copper ever pay for itself" but can NBN Co keep afloat?

As its major Creditor, Testra would be in a good position to get a failing NBN Co for nothing more than what it was "owed". That would be the biggest commercial disaster for Australia Telecommunications possible.

NBN: Turnbull's Weasel Words - I

Turnbull appeared on ABC Local Radio, Shepparton, (transcript) repeating his usual phrases and claims. Politicians are notorious for not saying things that can be clear enough to be held against them later.

Combine this political trait with the wiles of a former barrister history and you'll find Malcolm is very deft at this 'art'. I find his utterances to be a classic use of Weasel Words, not just oversold or misleading, but deliberately obfuscating (hiding) critical issues and phrased in a slimy way so that later he can truthfully say "I never said that".

Through this he creates the impression of firm promises and strong statements. They are not. But would you expect less in a politician making vapid promises in the hope of getting elected?

More so when it is peddling an inferior infrastructure on the scale of his FTTN plan?  A plan rejected in 2005 (by John Howard of all people) and trying desperately to be revamped in 2013 and beyond.

This doesn't makes economic or technological sense.
Here are some of the tactics Turnbull uses to obfuscate. This piece comes from a longer version.

1. Attack the Messenger: it's a good strategy when the public has rejected your message and you want to deflect questions. Over multiple questions on why there seemed to be overwhelming public support for Fibre, not Copper, the ABC summarised that the media was to blame and they weren't asking the right experts.

2. Turnbull has repeatedly said, including in this interview, Labor is "telling lies about our policy and indeed about their own". Elsewhere he has said in public, repeatedly, that Labor claiming "connection to the (current) NBN is free" is "an outright lie", "Now that is a lie" and in this interview, "outrageously false and terribly misleading".
Turnbull is setting a very high bar for himself by picking at minutiae and using strong language like "outright lie". He's also wrong in his blanket assertion: At least one large ISP/NBN Retailer, iiNet, do not charge setup fees for standard NBN service installations.
Were Labor "lying"? Only in a very legalistic and pedantic sense. BUT, if you adopt that frame of reference and apply the same test to Turnbull's rather over-the-top rejection of the proposition, then he too is wrong.
Using Turnbull's own logic and standards, he is being "outrageously false and terribly misleading" in his accusation of lying. Why? Because not all NBN Retailers charge setup fees in all cases (those with a standard install can get zero setup fees if they choose their Retailer well) - as must be the case for his legalistic pedantry to be 100% correct. And as he is the one attempting to enforce the standard of complete precision and exactitude, then he must also accept that all his statements will be tested against his own standard.
 3. Turnbull trots out the usual "we estimate" it will cost much more "will take many, many years – it could be decades – to complete", and later switches, dropping "estimate". Both pure spin, justified only in the minds of those making up the Coalition estimates. Plus trotting out the usual "you've seen how little progress if any there’s been in ..." is more weasel words. Later he quotes his own worst-case scenario estimate as if it were an established fact, giving it the same credibility as the professionally created, detailed and justifiable NBN Co project budget.
Either Turnbull does NOT understand the nature of large, complex infrastructure projects or he does understand the complexities and realities and is being purposefully disingenuous  and misleading. It cannot be other (this one is binary logic). He is either uninformed and incompetent or knowingly "spinning",  I consider outrageously. Both are NOT what voters respect or desire in a possible Minister for Communications, the role he is advertising and advocating himself to fill.
4. Q: "Do you personally believe that that is the superior option to the fibre to the home network which is already underway?" A: "Well it is certainly the most cost-effective one."
"Cost Effective" is a weasel phrase to mean "Cheap" and probably nasty. Turnbull is confusing and mixing up terms, that somehow what seems like an accounting or business term is being applied to the NBN and a cheaper, inferior solution is preferable. There is no standard definition of "Cost Effective" - it translates to "If we feel like it". What's most effective depends on what expenses you include or exclude, the time-frame you use and whether you consider profitability/returns or only input costs.
The Turnbull Node Plan can only be 10% cheaper to the Government, while much more is transferred onto customers (there really will be large setup costs for VDSL2 users), they cannot meet their promise of connection with "No Disruption", no DSL or telephone access charges have been published (but are used in their spreadsheets) and they are building their FTTN to throw away. In fact, they have put a number on their deliberate wastage: $2 billion dollars. For the 8.968M premises they'll "cover", they estimate $900 per service and "Capex Reused" will be 50% [bottom p14 Background doc]. Translated: "we'll throw away $450 per service on 9M services". Strangely, this is about how much less VDSL/FTTN is than Fibre.
What Turnbull never goes on to discuss is something most people, including the commentators, don't seem to have paused to consider: Will Fibre to the Node be more profitable?
Confusing "more Cost Effective" with "more profitable" is the massive con at the heart of the Turnbull Node Plan: "Sooner, Cheaper and More Affordable". They have never spoken about being Profitable or even paying for itself, let alone providing a Return.
Every single Business Plan, especially by big business, and that Turnbull would have written or assessed has four critical numbers, only one of which, Total Funding, appears in the Turnbull Node Plan.
  • Total Funding,
  • Project Lifetime,
  • Return on Investment, and
  • Years to break-even.
"More Affordable" can only mean one thing: lower charges, which means lower Revenue. Turnbull et al have never discussed their anticipated Revenues, how long before they intend replacing their Fibre to the Node network, how Profitable it will be and if it can or will ever be able to pay for itself. The only commercial aspects they've discussed are "Sooner" and "Cheaper".
"Cost-Effective" is weasel words solely to mean "Cheaper to buy" and to take attention away from their own modelling: the Turnbull Node Plan is a Financial Disaster. If it wasn't they'd be talking about Profitability as well.
It will cost many more times to run the the Nodes, they will make a lot less in Revenue, barely covering costs. Not only will the Turnbull Node Plan force $2-4 billion of new costs onto customers, it will be barely profitable, it will never pay for itself, can never provide a Return on Investment (versus 7% in the current plan) and while they say they intend to throw it away, provide absolutely no detail on that critically important next stage of their Plan: who will pay, and how much, for direct Fibre in the future.
5. Here, two issues are conflated. First: Nobody but the Turnbull experts know anything, amazing when he also calls Labor "arrogant".

The second is simple, he's not comparing Apples with Apples. All the "authorities" Turnbull cites are incumbent Telcos who critically, like Telstra, own the copper. That's the enormous difference here in Australia: Telstra, the asset owner, is not building the network, that completely changes the economics. One of the largest single costs to, and creditor of, NBN Co is Telstra.

The answer to Turnbull's rather bizarre & irrelevant comparison is simple: Yes, they all know what they're doing with their own copper. That's NOT what we're dealing with in Australia, or did you not notice that "$50 billion" deal you wrote about in your Node Plan?
the people that we have been speaking with and learning from are not people who bob up on television and maybe have a lecturer at a university or something. They’re people who are actually building networks. You know, you’ve got to be pretty arrogant and Labor is of course, to think that that they know best and:
  • Deutsche Telekom in Germany doesn’t know what they’re doing.
  • British Telecom in Britain doesn’t know what they’re doing.
  • AT&T in the United States doesn’t know what they’re doing
6. Costs. Massively underestimate his own Costs then massive and baseless exaggeration of current detailed & precise NBN Co costs, including never mentioning the latest real figures reported in April to Parliament. No mention of Revenue, Profit or Return on Investment: the critical factors in an investment.
So it’s not right to say it’s copper versus fibre. [Framing the question as "something else".] 
What we are saying is that you can save three quarters of the cost or three quarters of the time [his plan is NOT for $10 billion or 2.5 years. This is pure fabrication.] 
to get the job done by not digging up and replacing the last 4- or 500 metres of copper. [That Telstra, not NBN Co or the Coalition own, and will charge a lot for.
And that is because of the latest technology that is now available.... ["New Technology" must be good, eh?! Another meaningless, relative term. It's very expensive and a poor second to what really works.
But are we really so brilliant that we know something that the rest of the world doesn’t? [Yes. He's reframed the question as if we're in the same position as everyone else. It isn't Telstra doing the rollout on their own network. Elsewhere he cites "$50 billion" was given to Telstra, this completely changes his NBN project economics
I mean, are the Germans idiots?  Are the British idiots?  Are the Americans idiots?  Are the Belgians idiots?  Are the Austrians idiots? [Citing irrelevant Authorities. These are incumbent Telcos working with their own copper to maximise their returns on their asset.] 
Why are all these other countries taking the approach I am describing? [Because they're different!]
Q: "Malcolm Turnbull, just to recap on the cost under the Coalition plan, how much will it cost?"
A: "Well in terms of how much it will cost to complete the project, $29.5 billion for ours and $94 billion for Labor’s." [No, that's only a 1 in 100,000 worst-case scenario. Not a meaningful figure.]
"In terms of what it will cost people, it will cost – our estimate is that the wholesale price, and of course this will feed into the retail price, will by 2021 will for the average connection be $300 less." [All the Coalition "estimates" are unreliable and highly biased.]
So from these examples (and they are only a few) you get to see the political speak that Malcolm Turnbull uses on a regular basis.

You may note that the 'debates' he has are not with the 'techs' - people who have the on-the-ground experience and insight into Australia's current copper system. They are with journalists, other politicians and business people. Apart from whatever research they can rustle up, this is not their area of expertise.

Through this Turnbull can exploit any lack of confidence or uncertainty these questioners/interviewers may have about the subject. It makes his ability to bluff and obscure important details all the more easily.

If he took on an experienced person with indepth knowledge of the systems involved (which he won't as they might question too deeply), then many interesting facts about the multitude of failings of even proposing an FTTN in Australia would come to light.

Until then, technical commentators & bloggers like I, will keep writing, as it's beyond MSM (Main Stream Media) to do the detailed research and analysis and present the facts as we can. Then you, the voter & customer, can make more informed decisions on which is the better, more appropriate NBN for you, Australia and our combined future.

Sunday, 28 July 2013

NBN: Legal issues arising from campaign statements

Turnbull is an experienced Barrister, for him to use the words "outright lie" outside the protections of Parliamentary privilege means he firmly believes he is untouchable.

Ordinarily, all political promises are specifically exempt from the TPA, now ACL, provisions of "false or misleading statements". Part of this is because they are non-commercial in nature.

But making promises of a purely commercial nature about the provision of services to the public generally by a business enterprise, Government or not, seems to me to fall squarely under the provisions of the ACL and could be taken up by the ACCC, if they wished.

Especially of interest to the ACCC should be any material information deliberately withheld in the Coalition Broadband Plan, which is, in effect, a commercial prospectus looking to raise $29.5 billion dollars from the public. Specifically, the Plan/Prospectus is silent on the single largest commercial risk of the project: Telstra's co-operation. There is an unconvincing statement saying 'they'll give us access because in the media they've said the copper isn't work much', but there's the glaring omission of any Risk Plan.

If the Coalition Plan relies on agreements or understandings already, made but not disclosed, with major commercial partners, that again would be an interesting topic for the ACCC, possibly even the ASX.

Such actions would make for an interesting election campaign.

The other law that could apply is Defamation, claiming in the public media someone has told "an outright lie" is a very strong statement, definitely impugning the reputation of the person attacked.

My limited understanding of Defamation Law in most States now is that Truth is a defence, but a real expert would have a proper understanding of the complexities and nuances. This is a private matter between those who feel their reputations have been defamed by these repeated statements in the public media.

But in the way of the Law and Elections, a full case doesn't have to be heard for there to be an effect and outcome.

Could Turnbull be subject to a temporary injunction restraining him from commenting at all, especially disparaging, the current NBN? We'll see.

NBN: Is the Turnbull "No Disruption" promise "an outright lie" by his definition?

Central to the Turnbull Node Plan is a very strong promise of "no disruption" and "no disturbance" at the user premises. This can be read in two senses, "no disruption" to the user communications services and "no disturbance" to the physical environment.

Turnbull has repeatedly said on the public record, Labor is "telling lies about our policy and indeed about their own". He has responded to the Labor claim in flyers "connection to the (current) NBN is free" is "an outright lie", "Now that is a lie" and in a recent local radio interview "outrageously false and terribly misleading". His justification is that some, not all Retailers charge customers an account setup fee, unrelated to any NBN Co fee or charge. It is a very pedantic and legalistic reading of an intentionally short and general flyer.

Turnbull has now set a very high bar, for others and himself. How do the central claims of the Turnbull Node Plan stack up against their own test?

In early FTTN Broadband proposals, Telstra entertained the idea of "no disruption" cutover from all Exchange based services to a Node. This was possible because there was only one Telephone Switching Network and a single ADSL network. Telstra, as the sole network operator had a very good chance of having correct and up-to-date data on all active services at an Exchange MDF [Main Distribution Frame] and a good, but not perfect, mapping of all pillar connections.

Since 2005, and the wide-spread and increasing use of ULLS (Unbundled Local Loop Service), the situation is much more complex and anecdotal evidence suggests above 30% error rates in the various Fixed Line databases. There are now six of more independent Telephone Switching Networks in Australia and many more DSLAM networks fuelled by the extensive take-up of ADSL2. None of these Networks need be interconnected more than that required for Number Portability.

Again, there's extensive anecdotal evidence that in the new multi-contractor maintenance environment, field records are in disarray. I've written previously on the need for multiple Database Audits by any FTTN implementor, because there is a constant stream of service changes, including numbers, MDF/Cable connections and especially Pillar connections.

Applying Turnbull's "outright lie" test, can all existing phone and ADSL services be migrated with absolutely no errors or disruption in any form to any customers.

The Turnbull test is NOT ONE ERROR, so the answer is a resounding NO!
It isn't possible without freezing all services for the entire duration of the project.

Even then, given normal technical error rates, even with extensive testing & verification, the complex and extended task of swapping 6-9M services from multiple disparate Telephone Switching Networks to a new, untested Network will not be error-free. Most likely there will be a 1-5% error-rate detected within the first day, with more errors detected over time, as much as a 12-18 months.

For services in an FTTN footprint of 9 million connections with active service changes, there is a 100% probability of erroneous Database entries simply due to the delay between changing patches and updating the database. These consistency and "change window" problems are well known in Computing.

Turnbull needs to explain how he intends to meet his own standard of ZERO ERRORS for all interpretations of his "No Disruption" and/or "No Disturbance" at user premises.

Otherwise, by his own interpretation, he is responsible for "an outright lie".


From pg 8 & 9 Background doc:
And since there is no disturbance at the user premises and less digging up of streets, fibre to the node (or FTTN) upgrades in established areas typically cost only 20 to 33 per cent as much as running fibre optic cable all the way to end users (‘fibre to the premises’ or FTTP).  
The value of network technologies, which increase data rates over existing networks, is they avert the need to upgrade or replace ‘last mile’ lines to every home and business. This is expensive because it is both disruptive to residents, businesses and public amenities and labour‐intensive; regrettably, Moore’s law does not apply to digging holes.

From "THE CHOICE AT A GLANCE" graphic in both full and Summary Broadband Plans [Blue is Coalition, Red is Labor]

NBN: Is the Turnbull Node Plan "Telstra RIMs+HFC in Metro Areas" leaving NBN Co the scraps?

This chance comment caused me to revisit a burning question: Just how will Turnbull make good on his Node Plan? It's a Financial Disaster of the highest order as written.

This massive digital divide is going to be perpetuated if Telstra’s eight-year-old 2005 FTTN plan gets government funding, as rejected by John Howard then and proposed by Malcolm Turnbull in April.

It dovetails well with an analysis by Malcolm Moore, a Telecomms Engineer who "intricately involved with Backhaul Network and Customer Access Network design, construction and performance standards" in Telstra for quite some time, creating an innovative design and first-cut estimates for a Metro Broadband Network using Telstra HFC Cable Network and extending RIMs:
"Inexpensive Metropolitan Broadband Infrastructure" - about 6,000,000 premises would be inexpensively connected with Fast Broadband Internet and could  have Download speeds well exceeding 16 Mb/s.  

Mr Moore explains the 6M premises could be covered by HFC Cable and suggests that Metro areas account for roughly 80% of Australian premises, a good match to the 71% Coalition figure.

Telstra already has 8,500 RIM/CMUX's deployed, making it the largest & most-experienced "Node" operator in the country. It is also perfectly placed to redesign its Copper Customer Access Network to satisfy the Turnbull Node Plan and VDSL2 coverage. It already has its "Top Hat" project with DSLAM upgrades to RIM/CMUX's.

This explains many issues:

  • Why Turnbull refuses to go further than "They Will" when asked why Telstra would co-operate.
  • Why the Node Plan never addresses the complex issues surrounding renting or buying the Telstra Copper CAN.
  • Why reversing legislation and contracts on Cherry-Picking, over-building the HFC network, changing the ACCC wholesale price to a "maximum" and maximising reuse of existing infrastructure is at the fore of the Coalition statements.
  • Why the aggressive timetable for rollout.
  • Why the very strange and peculiarly specific number of FTTN premises covered: 8,968,000.
I suspect that the amount of enabling legislation & regulation changes would be small. Mainly removing the requirement for new services to only use Fibre and unwinding the Telstra HFC agreement. As proven by the failure of the Australian Cable TV market, there is only room for a single HFC Network in any one region. Either Optus will co-operate or continue with its HFC retirement contract.

From my first reading of the NBN legislation, I understood that any operator that was prepared to offer their wholesale services at NBN PoI's and conforming to the Layer 2 Data interface was allowed to operate - but would only be paid the ACCC wholesale rate. Relaxing that rule means Telstra can charge what it likes in any local area and isn't obliged to offer a service it feels is "not commercially viable".

The ACCC would also need to be directed on allowing undercutting of NBN Co AVC charges and that any operator, including Telstra, could Cherry-pick services in any region and not have to offer a uniform pricing scheme or national coverage.

Where does this leave the Telstra Structural Separation Agreement? Probably untouched.
Will it need another Shareholder Meeting and Vote? No, the existing Agreement will be in force and may even be taken up in 10-15 years time. A double win for Telstra.

Is it a good idea for the Nation and the Telecommunications industry reinstating a Telstra near-monopoly? A lot of people may not think so.

Two important questions remain:
  • Will Turnbull be forced to sweeten the deal with Telstra and pay them to roll-out al of part of their new 2005 NBN?
  • Will NBN Co be able to survive commercially having to service all "non-viable" premises? The inherent cross-subsidies was a major part of the business case.
If this is indeed the Coalition Plan, or close to it, when will they admit it and how long after an electoral victory would they sign the necessary agreements and legal changes?

NBN: The Blackhole at the centre of the Turnbull Node Plan

"Cost-Effective" is a Coalition euphemism for "Cheap and nasty". What it hides is a business that is meant to never pay for itself, let alone ever make a return. At best, FTTN lines will make $48/yr/service while NBN Co is already making $218/yr/service, 450% higher income.

The worst case, and highly likely, is for Telstra payments to cause FTTN services to lose $100/yr.

Business Owners understand there are two sides to the ledger: Costs and Revenues.
It not Good Business to reduce Costs if that destroys, as the Coalition does, your ability to raise Revenue.

Is installing 68,000 nodes then haphazardly running the odd fibre from those forlorn, stranded boxes to desperate, frustrated customers "Cost-Effective"? A quick analysis suggests it will be an expensive failure and those foolish to pay the "Earls Ransom", will not get the near the same service as direct Fibre subscribers.

Below I borrow from a longer piece, a comparison of Copper and Fibre Costs.
To that, add the unacknowledged Elephant in the Room: Payments to Telstra - $30-$180/yr/active service.

Because bits are agnostic about how they're transmitted, I'll omit Volume charges. We can expect them to be identical for users with the same access rate, regardless of connection type.

I've also omitted overhead charges, which I could guess at 25% of other costs, but which will be similar and I have no sound figures to estimate from.

From Coalition estimates, a DSL line will cost $162/yr to run and earn, at most, $240, a margin of $78, excluding payments to Telstra.
The best outcome after Telstra payments, would be $48, the worst, and more likely, outcome a loss of $100/line/yr.

Compare that to fibre, with a current surplus of $218.
Current income of $360/yr/service for access only.
And costs of $112/yr plus $30/yr to Telstra for $142/yr.
Margin without overheads = $360 - $142 = $218.

This ignores the intended losses in Throwing away the FTTN Network and also having to still pay the currently contracted Telstra payment to buy the lead-in and compensate for loss of the Phone Service.

Real Copper and Fibre Revenue

The 2014 Coalition forecast [pg 31 & 21 of Background doc] for ARPU is $22.26 vs the NBN Co Plan of $31.10, a 28% reduction. [ARPU = Average Revenue Per User, or Total Revenue divided by Users, per month].

To achieve the $22.26 figure, 10% lower than the $31.10 NBN Co Plan including Volume charges, they must charge under the current minimum AVC charge of $24 for all services. The Coalition can only be charging $18-$20 for FTTN access. But they've never revealed their AVC for FTTN services used in their modelling. 

In April, the CEO of NBN Co, Mike Quigley, informed the Parliamentary Committee that the current ARPU was $38, close to the 2015 forecast figure and 33% ahead of the 2013 forecast.

From the NBN Co Rate Card for AVC's and the figures published in April of take-up rates by plan, the access charge is averaging $30/mth, or yearly income of $360.

Comparing Copper and Fibre Costs

NBN Co in April released construction figures for direct Fibre: $1100-$1400 per service. These are commercially supported figures, not estimates or guesses based on dissimilar projects.

The Coalition detailed plan suggests they used $900/service passed for VDSL2/FTTN (Copper) with $90/service in line-related maintenance, 10% of the capital price.

NBN Co have not released figures for line-related maintenance. Elsewhere there are suggestions Fibre is 7-8 times cheaper to maintain than FTTN. The Coalition suggested a figure of 1.5-2% of capital cost, this would be $20-$25/service.

The Depreciation rates of the two networks, FTTN and FTTP, Copper and Fibre, are different, but with their different build cost, they end up depreciating around the same amount per year.

The Copper Network will have a service life of 15-20 years, while the Fibre Network will have more than 30 years in service.

Copper depreciation per service, straight-line, will be $900 ÷ 20, or $45/year,
while Fibre depreciation per service, is $1400 ÷ 30, or $45/year.

According to reliable commercial figures, the FTTP (Fibre) network is only 50% more than the price guessed by the Coalition. At 3% p.a. interest, that's $27 for Copper and $42 for Fibre.

Total Costs (Interest, Depreciation, Maintenance) per service are:
Copper = $27 + $45 + $90 = $162
Fibre = $42 + $45 + $25 = $112.

A Fibre Network will be $50/year/service cheaper to own, around 30% less based on sound figures.

Comparing Copper and Fibre Network charges

There is a small variable cost in CAN's related to cost-per-bit. Consumers value services based on what 'utility' it provide them. For someone that has a need, higher access rates are worth more.

While access-rate barely affects costs, it can be used to differentiate services for users. For Fibre here are 3 indicative prices: 12/1Mbps: $24, 100/40Mbps: $38, 1000/400: $150. For users that need higher speeds, they offer exceptional value. To the consumer, it's twenty times cheaper to buy a single 1000/400 Mbps service than 80 of the slowest services.

Currently, the access charges of NBN Co average around $30/user. That's a 25% increase for exactly the same physical equipment, just for asking. You'll find customers buying the premium service are extremely happy with the deal.

When 1000/400 Mbps access is offered, the average will kick up by another 15%, just for asking. And underlying the point, with customers happy they are getting an outstanding deal.

For a Copper CAN, without the ability to guarantee per-customer access rate, a single access price of $20-$24 is all that could be charged, the same or less than the cheapest rate for Fibre. It may be possible to increase charges for VDSL2 and VDSL2 Vectoring services, but probably only by 10%.

Right now Fibre Access earns 50% more than Copper, with a 15% kick coming soon.

Comparing Copper and Fibre Revenue Growth

While a Fibre CAN (FTTP) is 30% cheaper to run than a Copper CAN (FTTN) and currently gets 50% higher access revenues than Copper by delivering guaranteed access rates, the 1,000-fold less cost-per-bit means nothing, if there is no demand. I contend that Fibre, and only Fibre, unlocks the economic potential of Customer Data Networks because of tiered pricing, with high-end users self-identifying and being charged a premium for access and volume by RSP's.

This is where the Customer Demand Distribution comes into play. Sandvine data, for the USA, 1H 2013, show the low 50% of consumers account for just 6.4% of traffic. If you dropped them off the network, download volume would barely change and ARPU, Average Revenue Per User (per month), would increase considerably because there's a link between higher line access rates and higher downloads. 

People with a need for speed, download and upload more.

The high-end 50% of users account for around 95% of total traffic, more for upload. The top 1% of users consume 10% of total traffic. These are the people driving demand and traffic growth.
Data Networks for Customer Access are not built for the average user, they account for an insignificant volume of traffic. The customers that drive demand and fill your order books are the top 1-10% of users.
People who base their argument on "I don't need more speed, therefore the whole thing is a waste of time and money", don't understand the economics. They are almost noise in the system.

The long-term average download demand reported by the ABS has grown at around 70% (1.3 year doubling period) for some time, despite the average line access rate being limited to 4.2Mbps. We know that 95% of this traffic is from the high-end users: the ABS data is a good description of the solid, exponential-growth of demand by the early adopters. It is not a measure of ordinary use.

Network Operators will make their money from the top 1-10% of customers who will both buy the highest offered line access speeds and generate the bulk of the traffic. These customers can be charged a premium for both access and volume ($/GB) by RSP's - they have shown a willingness to pay and the NBN Co pricing model encourages this.

Low-end users, the late-maturity and laggards in market-speak, will either continue their current usage patterns and enjoy continually falling prices, or increase their usage for roughly constant ARPU. Some will discover their unique "killer application" and move up the curve above the 50th percentile.
For a Fibre network, the demand for increased volume and access rates will continue, because it is driven by the top 50% of users, especially the top 1%-10%, and the last 15 years of data tells us they are following the six decade old Computing demand curve: the thirst for data keeps growing as more is provided. [See Bell's Law diagram of prices in this previous post.]

Just as the business model of every Telco offering Telephone services is based on the human characteristic, "people love to talk", Computing devices and Data Networks are driven by a similar so-far insatiable human appetite for information and understanding: "people want to know, 'Why?'". This same appetite drives the entertainment and education industries.

For a Copper Network, line access rate cannot be guaranteed. Because of this, the most demanding users, the top 1%-10% cannot be supplied with Copper services they'll pay a premium for: supply and demand cannot be matched, a fundamental market failure.

Because all users will be charged a single price, RSP's will find it very difficult to charge a premium to high-end users, drying up their revenues.

We know from the faster take-up rates of high-end Fibre services and that average monthly downloads are 50% higher on new Fibre services, comparing to the Australian average, that there is significant pent-up demand in the Data Networking market, especially in the important and highly profitable high-end.

This pent-up demand cannot be reliably served or exploited in a Copper network because high-end users cannot reliably be matched to faster services.

As well, there's barely any speed increase options available, and they are increasingly expensive to deploy, versus the exponentially dropping cost-per-bit of Fibre transceivers.

Copper is being pushed from two ends: slower and 1,000 times more expensive!

NBN: Performance of Turnbull Fibre From The Node

There is a suggestion in the Turnbull Node Plan that "Fibre On Demand" is somehow identical to the current direct GPON connection of the current full FTTP Plan. This is not nearly the case, "Fibre isn't Fibre" when it's connected to a low-capacity Node.

Turnbull doesn't ever lay out just what his Node Plan does and does not provides:

  • Is the maximum distance, referred to as "a few hundred metres", 800m or more?
    • This sets both average/median access rates,
    • but how many ports are connected to each Node.
    • There is a world of difference in performance sharing a link between 150 and 400 ports.
  • How many Nodes will be eventually deployed by 2019 for "50Mbps to 90% of services"?
    • Is it 68,000 or 350,000?
    • How many customer ports per node will be supported?
  • What uplink bandwidth will Nodes be provided with?
    • Will that bandwidth be upgraded?
    • Under what conditions will links be upgraded? "Cost-Effective" is no answer.
    • What congestion levels will be deemed "commercially acceptable" by the Coalition?
      • Normally Nodes are connected by 1Gbps ethernet links.
      • While 10Gbps ethernet is available, Nodes that can handle that much dataflow are a great deal more expensive, by at least 5 times.
      • Will high-performance Nodes be installed everywhere or "cost-effectively", creating unavoidable network congestion for many subscribers.
If a Node has 200 ports installed and 150 active services, no matter what the ADSL/VDSL or GPON/Fibre access rate of the subscriber, they all have to share the uplink.

If the uplink is congested, it doesn't matter whether you have paid for 12Mbps ADSL or 100Mbps On-Demand Fibre, everyone will get the same low speed, poor throughput and lousy latency.

Those 150 active services can only get 6Mbps each sharing a 1Gbps uplink, notwithstanding having paid for a Fibre upgrade. The Node is a choke-point, it's designed that way.

We know from the long-running Gungahlin Experiment with ADSL over Telstra RIMs, that subscriber demand is highly correlated: there is a very strong morning and evening peak-period. It averages 2-4 times the low-load period.

This means that every wide-scale Broadband Customer Access Network (CAN) has to be dimensioned to cope with this peak-load. We know from the USA's Netflix (over 30% of night-time Internet traffic) that video streaming will severely increase this peak and its correlation: It'll be much worse when Netflix comes.

For the FTTN network to support the minimum almost-guaranteed access rate of 25Mbps, at least 4Gbps uplink would be needed in this typical Node.
But we don't know what Turnbull is going to buy: his guiding principle has been "Cost-Effective", a synonym for "Cheap". Because he's never addressed this issue, we can only assume it's Bad News: the cheapest, slowest backplanes and uplinks - 1Gbps.

The ACCC has had a lot to say about ISP's selling Broadband connections, especially their charges.
If NBN Co, via an Retailer, sells a subscriber a 100Mbps Fibre upgrade, they have a reasonable expectation that it will perform at that speed. Especially near that speed during the evening peak.

How many 100Mbps Fibre services can a single typical Node support? Just one or two.

But NBN Co are about to release 250/100, 500/200 and 1000/400 Mbps plans. At best, Nodes will only support 250Mbps, more likely they will be capped at 100/40 Mbps.

If that typical 150-port Node has 50 subscribers getting a full 50Mbps and averaging 30Mbps download during the evening peak, the uplink is already over-subscribed at 1.5Gbps. The other 100 subscribers only have to use 5Mbps, close to the current average download rate, for the uplink to be over-subscriber 2:1. That's a heavily congested link and unusable for everyone on the Node.

Right now, the average access rate is between 4-5Mbps, according to Akamai, so the maximum peak-hour demand per typical node would be at least 0.6Gbps if nothing changed. But the Turnbull Pseudo-Guarantee is for 25Mbps up to 50Mbps: at least 6-times the current rate, around 4 times the usual uplink speed of 1Gbps.

Is Turnbull planning to deliver Nodes that are 4-times too small on day 1. We have NO evidence to the contrary.

Adding a GPON Fibre connection will force a borderline uplink into meltdown. As I said earlier, bandwidth is shared, equally, and everyone suffers. This was the lesson from the Gungahlin Experiment.

It will be an expensive, slow process to upgrade 68,000, let alone 300,000 Nodes, from 1Gbps to 10Gbps, and even then will it be "too little, too late"? Not because "every link has 2 ends" and all the ethernet fibre transceivers (100-500,000!) will have to be replaced and upgraded, but because the Node "backplane", the electronics that shuffles all the data around, has to be replaced. This, like Vectoring, will cost a large fraction of the original Node cost.

The current GPON Fibre CAN is dimensioned to cope with very high peak-demand, with potentially congested links being able to be identified and upgraded, cheaply and easily. 

There will be no problem supplying individuals with 1Gbps services, nor a whole street with 100Mbps services.

That can't be said for the Turnbull Node Plan. Monitoring and managing Committed Information Rates (CIR) to each Node will consume a lot of resources, which the customer must pay for.

The only way to manage CIR demand is to limit access rates on Nodes. This translates to:
It's extremely unlikely that the Turnbull Nodes will ever support more than 100Mbps on Fibre and then only 2 or 3 services will be allowed per Node.
Fibre From The Node is a dupe: It's the most expensive solution possible, cannot perform the same as the current direct Fibre network and will be severely rationed.

NBN: Cost of Turnbull's Fibre _from_ the Node Upgrade

The Turnbull Node Plan frequently asserts, as if self-evident, that it is more "cost-effective" ("cheaper") to reuse as much existing infrastructure as possible. The Turnbull Plan then allows "On-Demand" fibre upgrades and recognises that NBN Co will upgrade to full Fibre some time in the future.

There is a very high penalty incurred in "bespoke" connection of Fibre From The Node versus the efficiencies of scale from a "production line" roll-out. On-Demand is the most expensive approach possible, with the highest possible downsides. Here I estimate that it is 8-10 times more expensive per service than the mass Fibre roll-out already scheduled. The real cost advantage, per service, of copper is around $150, and nullified if "On-Demand" take-up is above 5% over the whole life of the Nodes.

Plus, because of the haphazard and random nature of "On-Demand" upgrades, a later mass rollout of Fibre must either remove or relay all the "On-Demand" cables or deal with the congestion and confusion in the pits, pipes and ducts. This is on top of removing all the nodes and transferring all services to direct Fibre.

But as a Customer, I'd like to know why I have to pay extra for what others get for free, or almost so.

Mass Rollout

NBN Co has released final fibre build costs of $1100-$1400. [in sources]

I believe this is in 4 parts:
  • upstream from local loop (fibre is laid in a continuous loop around a suburb). Transit etc.
  • loop past many premises.
  • tap + lead-in & PCD (external) install on premise
  • internal install + NTD/FWO/PSU. [85% take-up expected... Affects costs per-premise, averaged.] 
    • NTD = Network Termination Device. The white box you plug into.
    • FWO = Fibre Wall Outlet. Like a wall power outlet, but for Fibre to the NTD.
    • PSU = Power Supply Unit for the NTD. It may, if ordered, contain batteries.
    • PCD = Premises Connection Device. The white box on the outside of your house where the Fibre lead-in is terminated.
Which of those costs will be the same, which will vary?

I expect that the local loop and tap+lead-in are the big variables.

My estimate for mass-rollout would be $30-50,000/km to install loop (including trenching) and at 12.5m per premise, around $400.

Another $200 for lead-in + PCD [2 man-hours + lead-in].

Around 50% in those two parts: approx $750, possibly as low as $500.

On-Demand Install

For one-off upgrades, what pre-built infrastructure do you assume and what local challenges?
For example, congested or collapsed ducts.

Do we assume the average distance of 560m for an install. [For 800m maximum, half-area is 560m radius]

Remember we have to allow for three truck-rolls, versus two of a mass rollout.
  • site + route inspection [2-4 man-hours @ $150/hr: $500]
  • run local loop + lead in + Node Fibre card + network config. @ $50/m = $3,000 + lead-in ($300?) + Node ($150 + card ~$100) 
    • $550 min + $3,000 avg in fibre.
    • Allow 1.5 or 2.0 "fudge factor" for congestion problems...
  • internal install. [one-off, add $150 to mass-rollout figure, so ~$500]
I estimate $500 pre-install, $500 internal install, $500 node/lead-in + $3,000 +/- 50% for loop.
Or $1,500 Minimum and $5-6,000 Average, easily up to $7,500.

Comparing Mass Rollout to On-Demand

It's $500-$750 in a mass roll-out for comparable parts: fibre pass premise, run lead-in + PCD and internal install of equipment.

For a "bespoke" On-Demand install, given the ducts are not full and contractors can be found in a reasonable timeframe, the average (560m) cost could be up to $7,500, with the maximum around $10,000 and minimum $1,500.

It's justifiable to say that On-Demand Fibre upgrades will cost between 8-10 times more per service than a scheduled "production line" rollout.
They cannot cost less than 2-3 times and are unlikely to cost more than 20 times.

On NBN Co Formal Expectations: Final Network Upgrade to full Fibre

The Turnbull Node Plan directs NBN Co to make the network upgradeable to Fibre.

Does that mean NBN Co must lay the full 208,000km in the optimal GPON layout they've designed?
Or just the 160,000 km needed for nodes, with enough fibres in the uplink to convert to GPON (using a 32:1 or 64:1 multiplexing).

Do we assume worst-case install for single-service upgrades, "Fibre From The Node"?
If they haven't run the GPON loop, the ducts will become congested with many short-runs of low-count fibre to individual premises.

The per-user upgrade cost in ONLY ONE HALF of the problem.

The other half is the "final solution": full Fibre upgrade. The Coalition has always planned to throw-away its FTTN.

In "10 or 20 years", everyone has to be upgraded to Fibre CAN and the Copper CAN removed... [CAN = Customer Access Network]

For the final Fibre upgrade we have two types of customers:
  • those who've paid themselves for the Fibre upgrade, and
  • those who've stayed with copper, even 15%-25% without DSL, or maybe no Fixed Line at all.
Who will have to pay for what? Those who paid $1,500-$10,000 for an "On-Demand" service will, rightly, demand zero-cost conversion.

Will 1%, 5% or 10% of customers go for the "optional" fibre upgrade? Will they cheat and share the 4-port NTD with neighbours (Not illegal in my reading. Not a resale.) Meaning they'll displace DSL connections. A fully-converted network may look like 20% of fibre installs and zero use of copper.

Does the "Final Fibre Upgrade" provide GPON (Fibre) to every premise in the Fibre footprint, just like the current plan?

If so, at what cost?
Plus there's a real cost of removing nodes and copper local loops, and then a ~$1,000 (Coalition estimate is $1,500) payment to Telstra under the current contract, the "Definitive Agreement".

Who will bear these extra costs? In the end, it's always the customer.

Reusing the last 800m of Copper saves $450, of which at most half will be "reused", while forcing "On-Demand" connection costs up 5-10 times and transferring them onto subscribers, adding Node removal costs and extra cost/complexity to the already planned upgrade to a full FTTP network.

At best, the Coalition saves $225 per service and increases final costs. (Increase of not less than $50, possibly $500.)
An "on-demand" rate of only 10% of subscribers, over a 10-20 year life of the Nodes, makes the whole deal a financial disaster.

At $1,500 minimum, and an average of $2,500 "on-demand" upgrade fee and a modest $75/service increase in final upgrade cost (a $150 real saving for Copper):
at 5% take-up rate over the whole life of the Nodes, Copper is the more expensive choice.


Telstra 2011 Definitive Agreement:
 10% Discount Rate applied to sale of Lead-ins and Phone Service disconnection.

$1100 - $1400 final build cost per Fibre service. NBN Co, April.

Pg 6 of Coalition Background doc: $1,500
NBN Co has separately signed contracts that involve payments over forty years to Telstra with a face value exceeding $50 billion if paid in full. These include a ‘PSAA’ payment of about $1500 each time NBN Co takes over a premise previously connected to Telstra’s networks.
Pg 14 of Coalition Background doc. Implicit recognition of removal of FTTN and upgrade to FTTP
Discount Rate  8%
Capex Reused 50%

Pg 5 of Coalition Broadband Plan.
Networks should be upgraded in the most cost-effective way using the best-matched technology. This will vary from place to place. existing infrastructure almost always has a vital role to play.

Pg 10 of Coalition Broadband Plan.
Where the NBN is rolled out using FTTN, existing communications services at a given node will cut over to NBN Co control on the same date.

Pg 11 of Coalition Broadband Plan.
Fibre on demand, co-funded fibre and future fibre upgradesThe Coalition acknowledges that some users may want higher speeds than can be provided over FTTN before any evidence of such needs in the broader market. likewise, FTTP in some circumstances may be seen by other tiers of government, infrastructure operators or private investors as economically attractive or commercially attractive. finally, market needs will clearly evolve over time and eventually may require further upgrade of the network where fibre has not been extended to user premises.
Reflecting these three possibilities, the Coalition policy provides for: individuals to obtain fibre on a user- pays basis where feasible; external public or private investors to propose and co-fund FTTP rollouts if they are willing to put forward 50 per cent of the needed funding; and an explicit future upgrade path to be incorporated into all non-FTTP NBN Co fixed line construction.

Pg 12 of Coalition Broadband Plan.
Future upgrade pathWhere NBN Co extends fibre beyond an exchange but not to user premises (i.e. deploys FTTN) it will be required to plan and build in readiness for future upgrades that take fibre further into the field. all FTTN designs must be upgradeable. 

NBN: Telstra payments for the Turnbull Node Plan

Turnbull is very coy about payments to Telstra. This is besides his tight-lipped response ("they will") to any questions related to his primary Project Risk: securing Telstra's co-operation.

While the VDSL2 service and Nodes may be 5%-10% cheaper overall than the current full Fibre Plan, Telstra copper-loop rental payments must be met out of FTTN revenues.

Estimates of what NBN Co will need to pay Telstra to use their copper local loops:
  • Lowest: $30/yr/service (3% of $1,000, only for active services) as Interest on a single payment.
  • Highest: $180/yr/service (10% of $1,500, with 20%  inactive connections) as indefinite on-going payments to Telstra.
  • Sting-in-the-tail: After renting the copper for 10 or 20 years, NBN Co will still have to honour the current contract and pay Telstra around $1,000 per service to buy the lead-ins.
For the current direct Fibre Network, my per-service estimate of Telstra payments for the copper local loop was $1,000, Turnbull's figure is $1,500.

Telstra cannot agree to lower payments because the current deal is what their Shareholders agreed to. For Telstra to agree to another, less lucrative, arrangement they would need to run another Shareholder vote. This is expensive and time-consuming process with an uncertain outcome.

There's a significant difference between the current direct Fibre agreement and the Turnbull Node Plan:
Under the Turnbull Node Plan, all Telstra lines are cut at the Pillar and moved to a Node. All Telstra lines must be paid for, at a rate Telstra sets, as an on-going rental fee. Only active services migrated to Fibre are paid for under the current agreement. My estimate is that at least 20% of copper loops connected to Nodes will be inactive: they must be rented from Telstra but will generate no customer revenue.
On top of this, the Turnbull Node Plan is designed to be thrown away ["all FTTN designs must be upgradeable"]. Even if half the cost of FTTN goes towards a full FTTP, Telstra has never sold the copper local loop, only rented it. The raises a fundamental question:
When the Turnbull Nodes are upgraded to direct Fibre, will the existing Phone Service disconnection fee still be payable? Customers, via NBN Co, get to pay Telstra twice for the copper service. That's seems incredibly Bad Business.
At the moment, NBN Co only makes a payment to Telstra when they take-over an active Phone Service. This one-off payment is a Capital Expenditure, but the dollar amount, with indexing, is not public. Reverse calculating the public figure, "$4 billion, after-tax NPV at 10% discount rate", led to my estimate of $850 per passed premise, or $1,000 per active service.


Same cost as current direct Fibre:
One-off payment, only for active services: $1,000 CapEx
Interest: 3% [Government borrowing]
Yearly charge: 3% of $1,000 = $30/yr per active service

Using the higher Coalition figure of $1,500 CapEx would yield $45/yr.

Rental from Telstra:
The Coalition calculates the 'PSAA' figure as $1,500, Telstra cannot accept a lower valuation.
Telstra demands a 10% Return (Discount Rate) on these assets.
Rental: $1,500 * 10% = $150/yr per service.

But, as control of all copper services, not just active (revenue generating) lines, is passed to NBN Co, the cost per active service is higher.
Assuming 20% inactive lines: $150 * 1.2 = $180/yr per active service


Telstra 2011 Definitive Agreement:
 10% Discount Rate applied to sale of Lead-ins and Phone Service disconnection.

$1100 - $1400 final build cost per Fibre service. NBN Co, April.

Pg 6 of Coalition Background doc: $1,500
NBN Co has separately signed contracts that involve payments over forty years to Telstra with a face value exceeding $50 billion if paid in full. These include a ‘PSAA’ payment of about $1500 each time NBN Co takes over a premise previously connected to Telstra’s networks.
Pg 14 of Coalition Background doc:
Discount Rate  8%
Capex Reused 50%

Pg 10 of Coalition Broadband Plan.
Where the NBN is rolled out using FTTN, existing communications services at a given node will cut over to NBN Co control on the same date.

Pg 12 of Coalition Broadband Plan.
Future upgrade pathWhere NBN Co extends fibre beyond an exchange but not to user premises (i.e. deploys FTTN) it will be required to plan and build in readiness for future upgrades that take fibre further into the field. all FTTN designs must be upgradeable. 
Also on Pg 12:
NBN Co and TelstraWe may seek to negotiate variations to commitments to provide efficiencies, allow the nBn to be more quickly deployed or otherwise create benefit.
NBN Co will seek permanent access to Telstra’s copper between premises and concentration points such as pillars, cabinets or exchanges. Telstra has publicly stated the copper has minimal economic value, leading us to anticipate cost-effective access will be attainable. 

Saturday, 27 July 2013

NBN: Defining "Fast Broadband", answering "Why Fibre?"

Politicians bandy around fine-sounding terms like "very high speed broadband", "very fast speeds" and "superfast broadband"trying to make distinctions or spin away the weaknesses of their own proposals.

We don't have a language police, so can't stop them speaking meaningless rubbish. Nor is there an accepted definition of "Fast Broadband". Al Gore's Information Superhighway, didn't pop-up in mid-1990s, the term was around for nearly 20 years by then. As an author noted in 1993, "in the 1980's, 56kpbs was fast" and in 193 they were talking mega-bit (1Mbps).

Previously, I've included a discussion of perceived "speed" and attempted a scalable definition:

  • Fast broadband can be defined as "Actions in my application seem to happen without delay". 
  • Fast Internet was, is and will continue to be, "I don't notice waiting for the next thing to happen".
The proponents of extracting the last ounce of value from the telephone copper network, designed only for 4kHz bandwidth, not the 17Mhz-30Mhz required by VDSL2, are always challenging the desirability of an Optical Fibre Customer Access Network, the "local loop".

Their question is: "What (current) applications need Fibre?". My answer:
  • Anything that has potential for unlimited bandwidth demand: video streaming, audio, still images, downloadable movies, video conferencing, tele-health, Geographical Information Systems (GIS), gaming and backups/archival. Optical transceivers at 100Gbps are already in production. In the laboratory multi-Terrabit (Tbps) systems are being developed.
  • Anything that requires a consistent Fast Broadband experience, no matter what demand is placed on it. Affordable, production Fibre transceivers already scale out more than a 1,000 times.
  • Anything that can benefit from Moore's Law driving cost-per-Bit/second down by 1,000 or more times in the next 10 years alone.
Copper solutions meet none of these requirements:
  • Copper has inherent limits that are already limiting services provided. While twisted-pair copper has been demonstrated at 1Gbps over short distances, it's up against three problems:
    • Physics: radio frequencies in copper lose power more quickly at higher speeds. You can go faster, but the cost is, you sacrifice distance. It looks exponential when you plot it.
    • Electronics: you can extract higher bit-rates from existing systems, but at an exponentially increasing rate. To get 10% more speed, you need double the processing and power.
    • Economics: to achieve 1Gbps to most premises, even at modest distances, would mean complete recabling: replacing all the copper. The whole Copper-v-Fibre debate is about avoiding recabling.
  • To provide wide-scale access-rate increases as demand increased, solely with existing copper, means costs increase extraordinarily fast:
    • Extensive upgrades of the DSL electronics at both ends.
      • You have to double the price of the electronics to get a modest rate increase.
    • Radically increasing the number of nodes, to decrease loop length.
      • To halve the loop length and double, or better, access rates means quadrupling the number of nodes.  Not only do you need much more expensive electronics, you need to quadruple your investment..
    • The construction & power-supply overheads, or 'civil works', of nodes stays roughly constant: although you build nodes around one-quarter the size, they cost 90-95% as much. Pushing copper to higher speeds removes the economies of scale and increases deadweight - overhead that doesn't make revenue.
    • You will have to "remediate" (tech-speak for replace) a larger and larger fraction of the existing copper to achieve promised higher rates over ever shorter distances.
      • The whole Copper-v-Fibre debate is about avoiding recabling.
  •  The reverse of Moore's Law applies to DSL. We know what Copper twisted-pair designed for Data Networking looks like: it's the blue Cat-5/6 cable you use on your computer. That's a much superior specification than your 1925-compliant telephone cabling, and even then it's only specified to 100m. Ever since the first version of ADSL, the price of each successive generation of faster DSL has gone up and the useful distance has shortened at a frightening pace.
    • The marginal cost of extra speed, the increase in price for an extra 1Mbps of line access rate, is extremely high and increasing at an accelerating rate.
    • This is the reverse of Moore's Law: price per transistor goes down while compute power increases.
    • The Price/Performance gap between Fibre and Copper is already 100:1, depending how you calculate it. This will only increase, but at an accelerating rate as faster Copper costs more and higher-speed Fibre costs less.
We know from 3G/4G Mobile Phones and ADSL that are higher speeds become available and volume charges ($$/GB) declines, usage increases. This is the economic definition of Price Elasticity of Demand.

The Data Networking market is confirming it has high elasticity, just as Telephony had before it. Drop the price a little and demand for the service increases, a lot. The cost structure of Telecommunications is dominated by Fixed Costs: Interest and Depreciation, then network operations and maintenance. The costs, to a Telco, of a service are barely related to what you use, most of their costs come from just building and running the network: anything they can do to increase total revenue increases their profits.

If a Telco drops prices by 5% and increases usage by 10%, they've just made 4.5% more profit. If they drop price by 10% and get 20% more usage, they earn 8% more profit while spending nothing.

We know from 30 years, 1965-1995, of International Telephone experience with O.T.C. that these economics are correct. People love to talk! The Telephony market was highly elastic: people are both price-sensitive and they get used to spending more money on phone calls.

The Silicon Revolution, and Moore's Law, drove down the cost of International circuits steadily for decades. O.T.C. reduced the real price per minute of its phone calls for three decades, until merged into Telstra. They became immensely profitable on the basis of Price Elasticity and Moore's Law.

The same conditions applying now for Data Networking, over Fibre, not Copper.

There is a demonstrated high elasticity in demand for Internet access and Fibre is the only technology riding Moore's Law to lower input costs. These are the economic and technical drivers that Fibre, and only Fibre, can ride.