Thursday, 25 July 2013

NBN: Issues with Copper vs Fibre comments and claims.

Renai Lemay on Delimiter posted: Turnbull “copper” NBN plan “bizarre”, says Albo. Renai is one of our better and more informed Tech Journos. I generally don't consider commenting on his pieces.

I disagree with two comments in his 'news' section and want to elaborate on a para in his 'opinion/analysis':

Para 1:
However, it is also true that the FTTN rollout methodology proposed by Shadow Communications Minister Malcolm Turnbull in the Coalition’s rival NBN policy has also been used globally with great success to upgrade broadband speeds and fundamental service delivery to millions of premises in countries such as the UK, Germany and the US.
No, these services cannot be said to have been rolled out "with great success".
Yes, they are in the process of being rolled out or have been finished recently.
They might be approximately "On Budget" for initial expenditure, but their business plans run for very much longer, 10-20 years.

The mark of "success" in any infrastructure project is simple: did it achieve its commercial goals, past tense.

I contend none of the FTTN projects have yet gone onto achieve break-end, let alone their returning their anticipated ROI. We'll only know in 10-20 years. Like Climate Change, the real data can only come in long after you have to take action. Exactly wrong if you're trying to make sound decisions.

This is the question: Will these "cheap" Copper solutions perform commercially? The initial deployment project is NOT nearly the whole deal.

That is, a) will they achieve or exceed their own business plan objections and b) will they be more profitable than alternatives (do nothing, FTTP, 3G/4G, Hybrid, ...).

Para 2:
However, the Communications Minister did not mention that under both NBN policies, if they deliver as they are planned, the actual cost of the network will end up being somewhat immaterial. This is because both policies plan to ultimately deliver a return on the Government’s investment in either, meaning that the funding involved of building either can only be counted as an investment, and not as an expense.
The NBN Co business plan is based on very detailed costings and conservative growth assumptions.
It contains a very explicit cash-flow plan, with break-even times and a long-term ROI (Return on Investment) of 7% by 2040.

The Coalition Policy documents are wishes and guesses at best, that have never been subjected to substantive independent analysis or checking, yet they are quoted as gospel.

Renai has made a mistake, the Coalition have NEVER promised a ROI on their "more affordable" plan. To be "more affordable", it must collect lower revenues, for the same premises active, and in the face of the acknowledged higher Operating Expenses (OpEx), a lower profit margin.

The closest I can find is a single reference buried on page 8 of the full Coalition Plan in "New statement of expectations". There is nothing in the summary, nothing in the Background doc about the Coalition's ROI or IRR (Internal Rate of Return), though all documents extensively criticise and pillory the current NBN Co plan and contend, without apparent basis 'they cannot (probably) achieve their target returns'.
NBN Co will be required to achieve these objectives while providing a positive after-inflation return on all post-election equity invested by taxpayers.
This weak statement is in the face of, Summary Financials, pg 31 of the Background doc.

  • Revenue over 2012‐2021 is $16 billion, versus $23 billion in the current NBN Co plan
  • Opex over 2012‐2021 is $22 billion, versus $26 billion in the current NBN Co plan
  • Capex over 2012‐2021 is $22 billion, versus $37.4 billion in the current NBN Co plan.
  • Capex to 2019, when the rollout reaches 100 per cent coverage, is about $20.4 billion
  • The NBN is projected to be cash flow positive in 2020‐21.

What the Coalition doesn't explain is their 50% extra Funding Gap, $7 billion less in revenues and $4 billion less in Expenses (unexplained) which could be their $3 billion difference:
  • The NBN Co 2012 Plan has a $37.4 billion CapEx and max Funding of $44.1 billion, a $6 billion Gap
  • Coalition CapEx of $20.4 billion vs max Funding of $29.5 billion, yields a $9 billion Gap, 50% more. Why is this so?

These issues are front of mind in the Coalition documents, but they go very quiet on the weaknesses and targets of their own plan. Odd, given they are self-styled Financial Experts and heavily criticise NBN Co plan on exactly these grounds:

  • "The capital funding already required by Labor’s NBN will probably never earn a return". p33 Background.
  • Sub Section: A ‘Fair Return’ for Taxpayers? p 18, Background.

Para 3:
[The following is NOT a partisan political view, it's a verifiable and accurate reporting of the facts. I shan't publish comments on this point, supportive or derogatory. It's a contentious position, I know. You're welcome to discuss it elsewhere.]
Meanwhile, in broad terms, the availability of broadband to the actual public hasn’t really changed much over the past half-decade. Most people are still stuck on low speeds on ADSL2+, a few of us are lucky enough to be able to access the at-times-congested higher-speed HFC cable networks, and most of the rest are quota-constrained on the 3G/4G mobile networks being rolled out.
How did we end up in the position Renai describes? It wasn't accidental, nor was it unforeseen.

The failure of Commentators to note this and for the Coalition to avoid ever taking responsibility for their role in creating a predictable, preventable and inevitable mess is one of the worst and most pernicious problems in this whole "debate" (it's really an argument).

The urgent need for a Broadband Network was created by the Liberals and Nationals during the Howard era. Within 6 weeks of taking the helm of Telstra in 2005, Sol Trujillo, was presenting the dire state of Australian Telecomms, and the need for immediate action directly to Prime Minister Howard. Infrastructure issues get worse the longer they are unaddressed, increasing in severity and cost to fix the longer they are ignored. Like road pot-holes, they worsen if left, not improve, and get worse at an accelerating rate.

Howard and his cabinet knew there was a problem, knew it was pressing, knew it would cost more to fix the longer it was left, knew that privatising Telstra without first structurally separating it would lead to a commercial disaster for every other Telco and knew from the "magic triplet": the Cable TV debacle, the ADSL mess and non-coperation between mobile network operators, that the private sector would never, could never deliver a National Broadband network, that a National Broadband solution had become only possible as a Public Sector initiative - that the private sector had entirely failed to meet National Strategic & Economic needs, and it happened on their watch.

It is on record that in the early 1990's Frank Blount, then CEO of Telecomm/Telstra, had formulated a plan, to be complete by 2010, to replace the entire Copper Customer Access Network with Fibre - funding it entirely out of Operating Revenue. What happened?? This was a major failure of Public Policy and good government.

This long-term failure of the Coalition cannot go unmentioned in the context of them bemoaning that 'Labor has failed to deliver a fully working network in 5 years'. Yes, Big Projects take time. Labor is trying to fix more than 10 years of Coalition ineptitude and inaction. In 1996 when Howard came to power, the upgrade of the Australian network was a small, non-urgent project, which was neglected until it's become large, expensive and urgent - and now Turnbull et al have the gall to criticise Labor for wanting to fix their mess and not fixing it overnight!

There is only one Party/side at fault here and it is the Coalition, the Liberals and the Nationals.


  1. I had, as you probably saw Steve (@7seven_tech), an interesting discussion with Renai on Twitter.

    It appears to me that there are 2 competing and completely opposite points of view here:

    1- The NBN, while behind schedule and facing problems with contractors (will having not spent their contingency mind you)and PR, is beginning to achieve its' goals of providing 93% of the population with FTTH, 4% with Fixed Wireless and 3% with satellite by 2021. It has been slow to start and could have made some better decisions, but with an average daily run rate now over 1000 premises a day, up from under 400 in March, it is clear they are realising their ramp up to full commercial rollout.

    2- NBNCo. are failing because they have missed every goal they originally set (ignoring changes in scope), they are behind schedule and there is not enough labour available for them to ever achieve what they need to achieve in the 10 year rollout schedule or within budget (ignoring the contingency). End of story.

    Position 1 tends to get taken by those who aren't directly involved in the commercial industry (that is who don't get paid to make design, business or economic decisions or analyses for ISPs).

    Position 2 tends to get taken more disturbingly, by those directly employed or paid by the industry.

    It almost appears as though the industry is saying "because this isn't happening exactly to plan it should be dumped and we should get our way like we didn't the first time". See Simon Hackett's recent ideas about "NBN rollout streamlining and cost optimisation" Most of the ideas would save NBNCo. very little money, but produce a result that keeps the industry ahead of where it is now (not consumers, literally ISPs commercially ahead) such as the lowering of CVC costs, the lowering of AVC costs and the removal of CVC Traffic Classes. They are ideological ONLY, not realistic ideas for a project so far in to its' ramp up or in requirements for ROI to stay an investment of government. I believe Hackett knows this. I don't know why he wants to shake the tree....although if it gets politicians attention, in the right way, it might actually make them look at ACTUAL ways to optimise the rollout, instead of bleating "But FTTP/FTTN is better" over and over.

    I think Renai, after talking with much of the industry, has begun to see their side, rightly or wrongly. He appears to be beginning to think non-incumbent rollouts like this are impossible....but the only evidence he has for this is incumbents have successfully rolled out FTTN or FTTP overseas, which is true....but there are no non-incumbent government funded telco's other than there's no evidence on the negative side??

    I just can't see what has changed so much in 6 months, when NBNCo. ARE actually producing real rollout numbers, to change his mind like this? Yes, there were genuinely worrying questions about transparency over the March rollout number changes (from my "between the lines" reading, I think Quigley got zipped by Conroy until it was unstoppable and possibly even contributed to his likely telling the board in March he was going to leave after June targets). And yes, NBNCo. have had very bad PR since then over a number of issues, several of which they'd already dealt with (like asbestos). But it is actually performing within specifications, if slowly, now. Why the sudden metaphorical *frustrated thrown hands in the air* all of a sudden??

    Why am I the only one who sees this between Renai and I? Sure, I don't want FTTN, but hey, if I actually thought the Coalition could pull it off, I'd be like "go ahead, waste the money, at least we'll get some improvement" They can't pull it off though. Renai at least agrees on that. But I just don't understand why now, just as it's getting somewhere, he thinks the current NBN is impossible all of a sudden...?

    1. Hi Seven,
      You're not the only one seeing it, be assured of that.
      More than anything I think it shows the influence of the Coalition's (Turnbull in particular) media barrage in bringing the argument down to being purely about the rolllout schedule. People in general are very influenced by the media cycle, whether they admit it or not. People like you and Steve are able to see the facts clearly, and remain clear through the created 'fog'. FTTP/H is a long term plan involving a massive infrastructure (Australia's biggest) which takes dedication to follow through to give a quality product.
      The problem with statements in articles like Renai's is the true position, even of the overseas FTTN projects, is that it fuels the negative fire by not clarifying the real situations there. *frustrated thrown hands in the air* is exactly what those against the Labor NBN are trying to create. It is actually performing within specifications, however this is blatantly trying to be obscured. it is the only 'argument' against the very high speed, reliable and ubiquitous benefits FTTH/P is offering.

      Keep steering the good course Seven. More people are behind this line of thought, and that means behind you and what you are expressing, than you realise.
      Cheers for the indepth and well thought out reply,

  2. Well researched and informed article. fttp should be the only focus of a project of the scale of the nbn.

  3. Thank you Steve, keep them honest.


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