Saturday, 31 August 2013

Fibre to the Premises - with an 's'. I stand corrected

One of the joys for me in blogging my opinions & analyses is the feedback I get.
Including the corrections.

So, thanks to this correspondent in educating me on "Fibre to the Premises". Much appreciated.

Hi Steve 
I have stumbled across your NBN blog and found it quite interesting. However one issue I have is the misuse of the word "premise", as in fibre to the premise. In my years working in telco I have noticed that this error has spread far and wide, and even Mike Quigley says fibre to the premise.  
The correct term is "premises". A single dwelling is a premises. Multiple are also premises. The singular is pronounced pre-ma-sis whereas the plural is pronounced pre-ma-sez. Look it up.  
Your blog is quite insightful, however part of your appeal will be based on how factual you are and if you can't get this word right then it could destabilise your arguments - ie "if this is wrong, what else is wrong?"   
Keep up the good work!

Yes you can post the blog, including the last line, as long as you send me a link to where it appears

From the New Oxford American Dictionary in OS/X:

premises |ˈpreməsəz|
plural noun
a house or building, together with its land and outbuildings, occupied by a business or considered in an official context : business premises | supplying alcoholic liquor for consumption on the premises. 

Friday, 30 August 2013

NBN: Real Cost Benefit Analysis.

Dr Henry Ergas, Professor of Infrastructure Economics, has called for over a decade that Cost Benefit Analyses be performed before infrastructure investments are made. His first target was the Coalition Government under John Howard, more recently he's questioned the NBN investment.

Infrastructure CBA's take one known variable, the Government Budget expenditure, and attempt to quantify the economic benefits that accrue to the community/country.

Government accounts, and hence CBA's, are fundamentally different to Corporate Accounts.

At the heart of Corporate Accounts are sales transactions: there is an exchange between the company and customers. The company provides goods or services in exchange for payment, or promise of payment, from the customer.

Government accounts are very different. There is no sales transactions. There is revenue, given up by taxpayers in exchange for nothing, there is expenditure where services mostly are given to recipients without payment.

For Government Cost Benefit Analyses, there is NO sales transaction, no exchange of payment and service/goods. There is an only an expenditure, a Cost, without income. The Benefits that accrue in the community are hard to identify and quantify.

Here's my contribution: it's very simple to create an accurate & quantifiable CBA for NBN Co.

The Cost is solely the interest on the Government Equity, raised as loans. This is an on-Budget expenditure. At 2.5% interest on $30.4 billion, the maximum current planned equity, this is just under $1 billion a year. This high-water mark is reached in 2018 and is maintained until 2023, being fully discharged by 2033. A total on-budget expenditure of around $12.5 billion.

There is an easy to measure economic benefit: the increase in the 12.44 billion Telstra shares.
These have gone from a pre-NBN agreement low of $2.55 to a recent high of $5.15, more than doubling, at least $30 billion of identifiable, linked gains.

In just one sector is a provable 2:1 Benefit. That qualifies as proven, useful CBA.

There is also the treatment of additional Tax Revenue created: as a business, NBN Co pays direct and indirect taxes. Company Tax and GST, plus Personal Income Tax, Payroll Tax and Fringe Benefit Tax.

In total, these are 30% of Profits plus over 20+% of Revenues.

But all this is moot:
We know the Cost-Benefit ratio of all profitable investments before we start: it's infinite, because the cost is ZERO. NBN Co at 2040 won't just have cost the government nothing, but will have paid back the equity invested, with a 7% ROI.

Included below are the current NBN Co Funding forecasts.

NBN: Turnbull, it's time to "put up or shut up" with your numbers.

Turnbull and the Coalition brag about their NBN plans being the most detailed ever presented by an Opposition. It's an unverifiable statement.

What's true is that they are consciously and deliberately withholding critical financial details of the business, critically affecting the public funding from the budget.

If "NBN Lite" is really a "Core Promise" and they intend to complete it fully, make it commercially viable and return a profit, then Turnbull and the Coalition should have no trouble or hesitation in making their modelling fully public. There can be NO "commercial-in-confidence" data there.

Especially in light of Abbott's very public commitment to "No surprises, no excuses" and "a referendum on trust".

Turnbull and team had to create a full financial model from 2012-2040, presumably in a spreadsheet, to create their documents. They had to recreate everything in the NBN Co Corporate Plan, especially Chapter 9 on Financing.

While there are assumptions and other data they should not be held to account for, there is NO valid reason why they haven't presented exactly the same data, in close to the same format, as is in the NBN Co's Corporate Plan.

So, Mr Turnbull, where's your financial and funding forecasts? Or are you hiding them for good cause?

These are the minimum charts and tables Turnbull should've prepared from his full financial forecast spreadsheet(s). Taken from NBN Co 2012 Corporate Plan, Chapter 9.

Funding, especially Government Equity required, is essential to calculate on-Budget payments of interest. It also implies pay-back period. ROI is listed in one of the tables.

Ex 9.10 Forecast Funding profile

Ex 9.2 Summary Financials, including 2040

Ex 9.4 Key Financial Indicators

Ex 9.6 Premises Passed, by type, 2021

Ex 9.7 CapEx to 2040

NBN: Despite News Ltd, Turnbull WILL kill NBN, if he wants.

News Ltd ran a cock-and-bull story today "NBN here to stay, no matter who wins" that is provably false, claiming:
This means that whoever wins the election, there will be an NBN and structural separation of Telstra, and the only differences will be in style, not substance.
Turnbull, on-record to an unnamed MHR, has unequivocally stated [Point 9]:
The Coalition has not 'settled' on FTTN. 
This does NOT commit the Coalition to any version of an NBN. Turnbull is not on record anywhere as giving a firm commitment to completing an NBN. You might think he's said that, but he and the Coalition have crafted their words very carefully. In the letter to the MHR, Turnbull fails to make this simple statement, one which would've taken no effort and an issue he would've been acutely aware of when crafting his long-delayed response. Failing to saying anything leaves the door open to "I didn't say that" refutations later, a favourite ploy of Turnbull.

To say that any options about the NBN under the Coalition are firm is a deliberate misstatement. News Ltd, in my opinion, is making a deliberately incorrect claim in this piece.

The Coalition clearly states it will undertake 3 'reviews' of NBN/NBN Co within its first 60 days. To pre-empt the results of these reviews is incorrect and deliberately misleading.

Until the three scheduled reviews are complete, and remember a Coalition government is not bound to act on the recommendations of any external report/review, nobody, not even Rupert Murdoch, can say "the NBN is here to stay". Even then, they still have a full term to cancel the project. They're in control of the Federal Budget and get to decide where every cent goes, or doesn't go.

There are many, many ways for Turnbull to fulfil his mission to "Destroy the NBN", not limited to cancelling it outright.

If the Coalition intends to a) finish the NBN, b) to substantially the current coverage and timetable and c) keep ownership of NBN Co well past its first term, it needs to go on record saying so unequivocally.

Otherwise, we can infer from the evasive, obfuscated, complex, incomplete and ill-detailed plan with tortuous language around these topics, that the completing the NBN is not "a Core Promise" and they will actively seek ways to "Destroy the NBN", or prevent the rollout of a competitive & desirable broadband network, as has been their position since 2005 when Sol Trujillo first floated it.

There's a simple test:
Has Turnbull or anyone in the Coalition ever offered a reason for why they now committed to rolling out an NBN sooner than the full FTTP build?
We all understand "cheaper" in the context of "Good Economic Managers", but why is "sooner" a priority at all after 10+ years of inaction and implacable opposition?

What changed their minds? They've never said, so why would anyone think they have?

Many commentators would have us believe Turnbull worked some powerful magic within the LNP to reverse a decade long position. Where's the evidence for that? I've seen none given. What I do see is a Plan that cannot be brought to successful commercial & profitable operation, is full of errors of fact. logic and substance and is littered with convenient "out's".

If Turnbull was really committed to building an NBN, why has he crafted a "plan" that is so complex and so riddled with omissions that the Parliamentary Budget Office cannot cost it?

If Turnbull, as a master and experienced investor, wanted to present a plan that the PBO could cost, he would've released his full 2012-2040 spreadsheets and matching critical full-period charts for funding etc derived from his forecasting model that NBN Co released in their 2012 Corporate Plan. Turnbull is either incompetent, which I don't believe, or working very hard to hide some very unpalatable facts.

From pg 12/13 of the Coalition NBN Policy:

Review of NBN strategy/policy process and NBN governance/industry matters
The australian people deserve the facts about labor’s NBN and its lessons for the public policy process should be studied to help avert similar episodes in the future. NBN Co must also be scrutinised, both to ensure it can be repurposed as a vehicle for a more rational policy and to learn from any past missteps. if elected the Coalition will initiate three reviews, each with a specific focus and reporting horizon. 
NBN Co strategic review
This review will be a rapid but rigorous business review of NBN Co’s rollout progress and costs, structure, internal capabilities, commercial prospects and strategic options. 
Independent audit into broadband policy and NBN Co’s governance
This review will be a separate independent audit to examine the public policy process which led to the NBN and NBN Co’s governance. it will have the objective of ensuring policy process or governance lessons arising from recent broadband policy are captured and made public. 
Independent cost-benefit analysis and review of regulation
This review will analyse the economic and social costs and benefits (including both direct and indirect effects) arising from the availability of broadband of differing properties via various technologies, and to make recommendations on the role of government support and a number of other longer-term industry matters. The study (which will be conducted at arms-length from any previous NBN activities)

Tuesday, 27 August 2013

NBN: A Need for Speed 3

Tamara Plakalo in the AFR notes that, for her, Turnbull has best phrased why we need fibre:
“speed is only of value to you in so far as you have applications that need it”.
 Only that's not nearly the whole truth, in fact it shows classic Turnbull "upside-down thinking":
Applications don't require speed, people do. When people are allowed to place a dollar value on their time by selecting higher access rates, the vote with their wallet.
The real data is in from a statistically valid (50,000 of 12M) fibre connected households. Take-up rates are running well ahead of forecasts and 31%, not the 18% forecast, have signed up for the current maximum rate.

Part of this must be nearly half ISP connections are "Business or Government" according to the ABS (Dec 2012), up from 28% in Dec 2009.

When people can put a value on their time, they trade more expensive higher speeds against wages.
Even at $2/minute, Fibre's higher access rates provides exceptional returns.

"Who needs Gigabit?" Anyone who values their time at more than nothing!

I've created a spreadsheet showing the break-even points for higher speeds (250, 500, 1000 Mbps) compared to 100/40. In 2040, if you only do uploads, then at current average wages + on-costs ($120/hr) 16G/month is the break-even. 41GB for all downloads. At that time, this will be in the lowest quartile of data consumption.

Previous pieces:

The Path to 1 Gigabit

Nobody Needs more than 1Mbps!

NBN: Turnbull spin "on-demand fibre"

Chris Griffith & Stuart Kennedy wrote a strong, factual piece in the Australian today, providing a good analysis of a Turnbull distraction, "Fibre on-demand" or "Fibre from the Node".
Rating for their article: 10/10

Turnbull has jumped on it, and naturally, refuted all claims and introduced more confabulation and misdirection. He doesn't mention the difference between "access rate", which he's selling and "sustained throughput", that customers want to buy.

Rating for Turnbull response: 1/10 [spelled his own name correctly]

Why is Turnbull so sensitive about people trying to cost his proposals?
Because for the last 5 months he's been very carefully hiding every financial detail.
He's never published any relevant detail, only blistering attacks when people try to decipher his waffle or second-guess his intents. Turnbull deliberately created this whole situation, why now rant and attack those who are doing their job and trying to clarify things for voters?

Why should Griffith and Kennedy even write this article if Turnbull has done his job well, and actually communicated his plan clearly and effectively? Why would they not just contact his office for a clarification and more detail? Because they know that, like me, they'll get an abusive, hostile reception.

So WHAT is Turnbull trying so desperately to hide?
If NBN Co offer "Fibre on-demand" to Nodes, the Plan clearly says they are not obliged to, then it just won't perform. The Turnbull Nodes are small and underpowered with dismal uplinks: that is why we have NO technical details about them. Cheap means low switching capacity.
Only businesses or high-demand users outside Turnbull's "magic zone" of 400m-500m will even consider a Fibre upgrade. However, if they think they'll get more than 50-100Mbps sustained throughput, they are dreaming. Node congestion will be extreme and throughput, latency and jitter terms the public will come to know and dread.
The problem with providing a 1Gbps Fibre interface to a Node with a single 1Gbps uplink is that an ISP cannot guarantee the advertised rate, leading to ACCC charges.

With 160 ports in a Node, and even 25% of them getting 50-100Mbps over VDSL2, the 1Gbps uplink starts with 40-fold contention. Add the other 120 users at 25Mbps as claimed by Turnbull, and you've got at least a 75:1 contention ratio on a rather thin 1Gbps uplink.

What happens when everyone comes home and want to watch TV at night? Especially if there's some large special event?  Everyone, including the fool that stumped up for a 1Gbps "fibre from the node", get the same, paltry 12-13Mbps.

This is the reality that Turnbull is trying to hide, his Copper/Node Plan will perform so badly due to congestion at the Node that people won't be happy. They'll be less happy when they try to upgrade, only to find Throughput won't change.

Unpicking Turnbull's Spin

NBN Co has not paid billions yet, it has contracted to make payments to Telstra. Some will buy the access path ("lead-in"), others are to rent access. The details are not public, not even Turnbull the Omniscient knows the detail. How can The Master of the Business Universe confuse payments made and commitments? He's either incompetent or bull-shitting...

Labor made NO claim on 19-April. NBN Co, a separate company of independent, expert and highly professional people published real figures on their costs.

Why would Turnbull claim it's "wrongheaded" to assume that the current standard of Telco business is adhered to? Customers are billed for their specific work, that's the accepted norm.
It's a simple enough business concept: each user pays for their services.

Turnbull has not said previously, nor does he say here, what conditions actually will apply to "Fibre on Demand". As Turnbull is so fond of saying "nobody can foresee the future" - which is why any Telco will charge a single customer the full cost of running a service if nobody else has ordered one.

Unless of course Telcos are charities that just give away everything, like he expects Telsra to donate him 215-250,000 kilometres of Distribution cable.

Why should the journalists have called BT Openreach when all their pricing and conditions are in full public view on the website? Do they have some special "mates rates" for Turnbull and his colleagues?

The only contradiction in either piece is Turnbulls. Griffith and Kennedy DO NOT contradict themselves on costings. They are quite clear and conservative in how they arrive at their figure.

Why won't NBN Co incur these costs in the mass roll-out of Fibre? Because they won't be doing "one-off specials", they won't be paying retail prices and they won't be making good a flawed concept.

The real answer is that NOBOBY will pay a $50,000 connection fee for "Fibre from the Node". They will, wisely, invest that money into an alternative service, such as point-to-point carriers that will spring up to full the void.

And Turnbull's final paragraph is plain bat-shit crazy...
How to avoid a $50,000 fee that nobody will ever pay for a substandard and inequitable service?
Simple, Do it Right, Do it Once, Do it with Fibre.

Monday, 26 August 2013

NBN: How Alan Jones was "played" by Turnbull

Radio "shock jocks" are great communicators for the simplest of reasons: they listen.

To get a large, loyal audience, you not only have to speak their language, know & even share their concerns, talk to them as equals, but pass the "have a cuppa (or beer!) with me" test.

It's isn't just about being liked, but being somebody people want to sit down with, someone they have a relationship with. You forge relationships over time by relating, by speaking and listening. People have to feel you know them and their circumstances, that you have empathy with, even care for, them.

That's why Alan Jones has built and kept a massive audience. Why Prime Ministers have lined up to talk to him. And why Turnbull sat down with Alan Jones and pulled the wool over his eyes and Jones' audience.

Every successful, long-running commercial radio presenter must become good at promotion, branding, politics and business. While they may start as an "everyman", unless they learn how to handle money and investments, they'll implode in just a few years.

Alan Jones seems to have a genuine concern for "Battlers", putting his own time and energy to helping them.

So why did Alan Jones so eagerly get on-air with Turnbull to destroy the most important social and economic support since 1945 for his "Battlers"?  Because of what Turnbull hasn't said.

The headline is that the Turnbull Copper/Node Plan is not just going to lose money, $10 billion at least,  but because it's designed to fail, the whole of the $30 billion investment will be written off, with the current loans all suddenly becoming part of the Budget and being picked up by the taxpayer.

If you doubt that Turnbull is hiding something big, not only have his staff stonewalled me since April on the simplest of questions ("what wholesale charge did you model with?") I got abused and sworn at, on-record, for asking. That's the smoking gun...

The NBN is designed to benefit Alan Jones' battlers most, but only if Fibre is used:

  • The top 25% high-demand users generate all NBN Co's profits. The rest of us, the other 75%, get a free-ride, either the NBN services at cost, or heavily subsidised. Fibre access rates are scheduled to reduce by 19%-26% by 2021 (and 51%-89% by 2040). Copper/Node charges will only fall by 10% by 2024. Fibre, not copper, is the cheapest broadband service.
    • This comes directly from two things:
      • Broadband demand is exponential: the top 1% consume 10% of all data, while the bottom half of users consume just 6.4% (six point four). There's a 500-fold difference at least across all users: the notion of an "average" user doesn't apply.
      • We know from the 31% take-up of 100/40, versus the 18% forecast, that subscribers are very happy to pay for higher rates for higher speeds, versus the "one model, one price fits all" of copper broadband lottery.
      • Already, Fibre is making 85% more in access charges than copper ($29.62 vs $16, wholesale), which I expect to be 145% more when the next 3 access rates are released soon.
  • Telehealth services, over Fibre, will become the next major Public Health system since universal clean water and sanitation. This matters more to "battlers" because health outcomes worsen for low-income earners. They also tend to not have broadband services, only mobiles, and then only entry-level plans.
    • Australia spends ~$120 billion, 9+% of GDP on Healthcare,
      • 70% of this on the chronically ill.
      • We urgently need to get this under control before the waves of older people arrive, needing far more, very expensive, medical care.
    • The USA spends 18% of GDP and we're heading there, as costs continue to rise faster than inflation.
    • It will cost $500-$750/yr to provide free home monitoring and HD video, over fibre, for those that need it. Timely monitoring and easy, quick video access prevents simple problems becoming a $100,000 life-threatening "event" leaving permanent damage.
      • Prevention pays for itself 10-times and more. People also live longer and healthier lives.
      • Fibre, with its 4-port connection, allows Community Nurses, unskilled in I.T., to reliably install and setup monitor, TV and camera and tablet/laptop.
        • It's secure and easy to fully support and upgrade remotely, just as every large business has done for the last 15 years.
      • VDSL services get in the way with a single service.
        • The person has to pay the ISP and provide and maintain all the equipment.
        • The service and ISP plan has to accommodate upload speed and data volumes needed, at the customers expense.
        • Attaching and configuring the "VPN" needed to access a secure Health Dept network is not simple nor easy: it requires an expensive I.T. technician to visit.
Here's some of the critical things Turnbull has left unsaid. Questions that require good, independent assessment, something that the PBO has been convinced not to give.
  • The Copper/Node Plan can only be 10%, $4 billion, cheaper to construct, based on Turnbull's own figures of $900/line. Telstra contract payments are another $1500/line, according to Turnbull.
    • Yet somehow, Turnbull claims $17 billion in savings: that's impossible.
      • Even if they pay Telstra nothing, they have to be paid to build the Nodes to achieve the savings.
      • There's $4 billion, by Turnbull's own estimate, deliberately wasted in building a Copper/Node network that will be thrown away, as planned by the Coalition.
      • 80%-90% of Fibre network costs are for things that don't drop in price, like civil works or cable. Waiting saves nothing and only creates a higher risk of a low Australian Dollar forcing up the cost of electronics.
      • We currently have the lowest interest rates in 60 years, making waiting guaranteed to be more expensive. The NAB CEO, Cameron Clyde, and Jeff Kennett, Liberal ex-Premier, are both advocating increased infrastructure spending now.
    • The Copper/Node plan, when you do the Maths, costs the same as full Fibre, but adds delays and increases risks.
      • In 2002 when Telstra's phone business was in obvious decline due to mobiles and broadband, the Coalition did nothing about fixing Broadband.
      • IN 2005, the Coalition was told that it urgently needed to build an NBN, but did nothing.
      • In 2007, it had no Broadband policy to speak of.
      • In 2010, it's lack of a credible Broadband policy contributed to its failure to win.
      • Now, in 2013, the Coalition have suddenly decided we have a broadband crisis and that it must act post-haste. Why? What just changed?
    • Telstra's share price has doubled since the NBN contracts have been signed.
      • The market assigns a very high value/importance to the NBN.
      • Why aren' the Coalition listening to Business and the market?
  • Turnbull is pitching the Australian taxpayer for $30 billion to invest in his new scheme, but hasn't provided an adequate Business Plan. Why?
    • Only 5 years of the 30 years of financial forecasts that Turnbull prepared are published.
      • If politicians deliberately hide figures, it's only because they're bad news.
      • Why did Turnbull leave out the majority of his financial forecasts.
    • There is NO break-even period.
      • If the Copper/Node network made a profit and paid off the loans, Turnbull would've screamed it from the rooftops.
    • There is NO Return on Investment.
      • Similarly, if there was any ROI, it would be talked about, a lot.
    • What's the maximum Downside Risk of the Turnbull Copper/Node Plan?
      • Without tiered pricing, the "one size, one price fits all" model destroys revenue.
      • Which coupled with higher maintenance and higher depreciation charges, makes it impossible to make a profit.
      • The only earnings hurdle Turnbull has set for his investment seems to be "cashflow positive", which he knows very well can never pay off the loans.

Stump questions by voters for Turnbull

If you're out an about and happen to bump into Malcolm Turnbull campaigning, here's some simple to remember questions you can ask him on his Copper/Node Plan:

  • What wholesale price will you charge for VDSL2 connections?
  • When will your Plan make a profit, not just be cash-flow positive?
  • Over the product's life, what's the ROI you're giving us on $30 billion?
And if you want, a coup de grace, try this:
  • Why did you deliberately withhold 25 years out of 30 of Financial Forecasts?
or is it:
  • Why haven't you had anyone independently verify your Business Plan and costings?

Sunday, 25 August 2013

NBN: What an Abbott government will cost you

The NBN: What an Abbott government will cost you

(With contributions and editing from Vince and MikeP.)

What do Australians stand to lose on the NBN if Abbott takes over?  More than they can ever imagine. Its all about progress and the future.

Each of us stands to lose - forever - time, opportunity and the small matter of $30 billion that we have to pay that Mr Turnbull hasn't mentioned.

Nobody has spelt out that:
  • The NBN is about increasingly 'adequate' speeds over the next 25 years. Only Fibre can offer that. Copper has technical limits and so Turnbull’s plan will be limited to the best technical application using copper. Optic fibre is only limited by the speed of light and reaching that speed is governed by new and developing technology which can be bolted on and replaced. Copper has reached its effective technological Zenith.
  • The top 25% high-demand users generate ALL the profit in Labor's NBN.  The other 75%, get NBN services at cost or heavily subsidised. Spreadsheet Modelling done with colleagues affirms this proposition. If anything the NBN forecast revenue is modest. With Turnbull’s NBN there will be no flexibility to grow speed or applications.
Already the NBN is making 85% more ($29.62) on wholesale Fibre access than the Turnbull Copper/Node proposal can ever make with its $16 wholesale price. When the next three higher speeds, not just 1Gbps, are released later this year, our modelling says Fibre will make 145% more than Copper/Node. As demand goes up, the revenue gap between Copper/Node and full Fibre NBN increases.

All this is because for the first time ever, Australian Internet companies can offer a "range of models" to consumers, based on the application they want to run. In a word ‘Flexibility” is built into a totally optic fibre network, whereas a Turnbull network is stuck at one speed and hence limited applications. It is capped at a speed, resulting in higher entry-level and median prices.

In effect this is the difference between the Marketing principle of providing people what they want and the selling principle which is giving people what you think they need. The market wants these speeds and NBN Co have delivered them. The Liberals don’t want to offer a choice of speed “models” and have shown no cogent reason why not.

Turnbull isn't offering "NBN-Lite" but "NBN Not!" . He's created a deception of truly astounding proportions. Since April, he's not just duped ordinary voters, but the entire media, especially the normally rational and cautious elite of our business reporters. He's confused people like Alan Kohler, which we've never seen before.


He's framed the debate as if the NBN were a normal Government program that is budgeted for annually, like Health or Education, programmes that spend money but don't make any.

Only it isn't.

The NBN is an investment designed to not only pay back our money invested by the Government, but to make a profit. The investment in the NBN is paid back with a premium of 7.1%/year. Can’t get those returns at the bank.

It's a very good business, albeit one that has a lot of value to the community and which will fuel Australia's business competitiveness for the next two to three decades.

For a business investment, the up-front cost is not the whole story.  At the very best, the Turnbull Copper/Node Plan can save only10% cost over the current full Fibre plan, bringing real broadband to 93% of us.  Technically it provides a much inferior service but that doesn't affect the faulty business model, designed to create enormous losses.

What business investors look for is profit , not just cost, which is generated by the difference between revenues and expenses.  “Cheaper” is not necessarily more profitable.  “More Affordable” is never more profitable.

The Turnbull Copper/Node Plan starts with revenues 60% lower than full Fibre and expenses 50% higher.  Ultimately, Turnbull admits his Copper/Node Plan will be thrown away, wasting half of the investment in it.  He says as much in his NBN Plan, but that deliberate waste is never counted in the cost of the Copper/Node Plan.

There are many other financial details that make up what will be a Government financial disaster of unprecedented proportions. Look up the Coalition NBN Plan to confirm these facts [link below].

Look in the Coalition NBN “Plan” for any of the business outcomes that you, as an investor of $30 billion , would like to see.

There is NO mention of:
  • How long before the investment is paid back in full (the “break-even” period).
  • Return on Investment (ROI: after your capital is returned, how much extra goes in your pocket?), and
  • Maximum Downside Risk (If the investment goes sour, how much do you and I stand to lose?)
To reinforce this point, Turnbull presents "Summary Financials", just like the NBN Co Corporate Plan, in his Policy Background.

Only they aren't nearly like the NBN Co Plan he pillories and criticises.

He wants us , the taxpayer, to give him $30 billion over 30 years, but he will only tell us what it will earn in the first five years. Though he talks about later years, frequently, he never discloses the important information in his plan: what the profits or losses will be over the full period. If the copper network was out of date 20 years ago, in 30 years it will be 50 years out of date! By then, we would have had around 10 parliaments.

As investors, we do care about what happens in 30 years, because we’re not just burning this money, we’re investing it.  Turnbull will be long gone and we'll be stuck with his unprecedented debt, as well as the most expensive lemon ever conceived.

Politicians only hide facts and figures when they are bad for them. They only go to the extraordinary lengths of Turnbull's five months of selling his NBN if things are incredibly bad.

Our modelling suggests that the Turnbull Copper/Node Plan is designed to fail, and fail big .  It will lose the whole $30 billion investment and, yet again, the taxpayer will have to foot the bill.  This isn't just poor economic management, like selling Telstra without adequate controls on its monopoly, this is deliberate waste on a massive scale.

It will take decades for the Liberal NBN to bleed to death and run out of cash, as the withheld Turnbull Copper/Node Plan financial forecasts show. And what happens to NBN Co then?

We, the taxpayers, lose our entire $30 billion investment and Telstra, as NBN Co's major creditor, get to take it over for nothing . We lose twice.

What happens when you question Turnbull's office about any of this?

You don't just get stonewalled, you get abused, with me being sworn at in an on-record email.

This isn't imaginary like the Turnbull Copper/Node Plan figures, this is real and provable, right there in Turnbull’s complex and deliberately impenetrable documents. Documents that the Parliamentary Budget Office, the PBO, has refused to attempt to review because of their complexity.

Turnbull will fulfil his mission to "Destroy the NBN", but more subtly and more completely than in an previous Coalition plan since 2005 when Sol Trujillo first put it on the national agenda.

What does the average Australian stand to lose on the NBN if Abbott gets into the Lodge?

$30 billion dollars, two decades of being trapped in "Copper/Node Hell" with an inferior service and ending up again being held hostage commercially to Telstra’s failing copper.

We're being set-up by a truly cynical and opportunistic political machine.

The present Optic fibre NBN plan embraces the market, with benefits like competitive advantage, productivity growth, remote healthcare & monitoring, working from home so the costs to firms will reduce and a whole host of other tangible outcomes in health and education.   The Liberal plan hamstrings the speed of light and traps us in the past. It offers more of the same old copper with none of the optic fibre benefits of flexibility. It is a new age Dinosaur. And the Zoo keeper is one Malcolm Turnbull.

Update, from Francis Young:

Why is FTTP superior? Fibre has no bandwidth limit and lasts 60 to 100 years. Every broadband technology operates just under the speed of light, but a glass fibre can carry millions of distinct colours, each of which carries data. Only fibre offers limitless bandwidth with no appreciable signal loss, even between cities. No electrical components are required from exchange to premises, and the fibre is unaffected by floods or electrical noise. 
Copper lasts just 30 years, says Telstra, so most taxpayer-built copper is now on borrowed time, and copper costs Telstra $1.3 billion annually to maintain. Copper bandwidth drops sharply with distance as the high frequencies are drowned out by line noise, even with wires twisted into pairs. FTTN cabinets can shorten the copper distance to traverse, but cannot fix water-damaged cables. To get faster speed, you must lay new copper and build ever more closely-spaced cabinets. 
Likewise for the best wireless service, you deliver fibre to Wi-Fi access points, reducing data demanded of mobile phone towers. Fewer outdoor mobile towers are then needed and they are less congested.

Links :

Coalition Policy:\U2019s%20Plan%20for%20Fast%20Broadband%20and%20an%20Affordable%20NBN.pdf 

Coalition Policy Background: 

Turnbull staffer, stonewalling and swearing on-record: 

20 years of "Broadband Hell" in the Gungahlin Experiment: 

The Need for Speed: the path to 1Gbps. 

Saturday, 24 August 2013

Business Case Copper/Node vs Fibre

First, an unrelated comment: To see how real industry experts talk and what they think on NBN policy issues, see this TJA article from June. When the preeminent Professional Journal in the field can choose anyone, who do they choose? All the people whom Turnbull says are inconsequential and irrelevant. These people have long experience, sound, independent views, tied to neither political party nor wed to any technology, so are obviously disqualified by Turnbull.

The Rudd v1.0 Government in 2008 called for private tenders to build the NBN that the Coalition were asked to build in 2005, and were prepared to tip in the same amount: $4.7 billion. The Coalition were bitterly opposed to an NBN then, just as they were in 2007 and later in 2010.

Telstra, with its army of lawyers, filed a non-compliant response and was removed from evaluation. It didn't provide a detailed submission in support of local business. Previously I've dealt with the process.

The rest of the contenders, those who didn't own the Copper and access assets, were deemed non-commercial. Prof. Reg Coutts, of the seven member Expert Panel observed in Computerworld, 2010 (quoted as well on "NBN Explained"):
Essentially to go down the FTTN road would mean something in the order of, greater than 50 per cent of the capital being put into digital cabinets in the suburbs,” he said. “They then become an obstacle to the final solution… fibre-to-the-premise. Fibre-to-the-node was not a stepping stone to fibre-to-the-premise. In fact, if anything it would put it backwards. [emphasis added] The second reason, of course, is in no other market have people proceeded with fibre-to-the-node other than an incumbent. It is a solution that is the right solution for an incumbent that has a copper infrastructure. [emphasis added]
Nothing has changed: what was a really bad, uneconomic idea in January 2009 is now a worse idea.

Telstra have a contract they'll need paid out and they'll also charge handsomely for the 200-250,000 kilometres of 10-pair cable from the nodes to premises that Turnbull needs. Unless of course, he decides to compulsorily acquire them. Nationalising private assets is normally reserved for extreme Socialist or Fascist governments. Perhaps that's another clue to how the Abbott government will work.

Even Turnbull in his wildly optimistic and fantastical projections acknowledges Prof Coutts point:
In building an FTTN, even if you own the copper & access, you're planning on wasting half your investment because you will throw the whole thing away. The meaning of  Turnbull's "CapEx Reuse: 50%" estimate.
Turnbull doesn't include this acknowledged planned wastage in his project costings, as he should.
If you do the Maths correctly, the FTTN saves nothing, just makes the people who have the needs and means to pay for higher bandwidth wait decades longer or seek alternatives and remove themselves as a customers the project, removing the 25% who generate all profits.

Right there is the Cost/Benefit Analysis justification of the FTTP, especially over a FTTN:
If, like the Australian Government, you don't own the copper & access, then if for Policy reasons you want to build an NBN, full Fibre is the only rational, economic course of action.
If Turnbull wins office, we're going to hear a lot about "costs", "waste" and "poor economic management" by Labor. We won't hear the truth from him, that he's planned to land the Australian taxpayer with a $30 billion writeoff, courtesy of his ill-advised and wasteful FTTN.

Proof is simple:
Look in the Coalition NBN Policy for an "ROI" or pay-back period: these most critical investment numbers are notably absent. Look at the "Summary Financials" in Turnbull's "Policy Background": they are only for 2014-2019, missing the next 25 years that matter most. For an investment of $30 billion, this makes Turnbull and the Coalition a laughing stock.
The Turnbull Copper/Node Plan can only land the Australian taxpayer with a $30 billion bill and give NBN Co's assets, for nothing, to their major creditor, Telstra. We lose three times over...

Friday, 23 August 2013

NBN: Fibre v Copper and how the Liberals deliberately killed broadband in Aus

An optical fibre Broadband network is the best and cheapest solution for universal fixed-line access in Australia. Its speed comes from shining light down a glass cable. The speed comes from the speed of light. Light is changed into electronic signals & back again, whilst different equipment can be bolted onto each end of the cable to convert the light to and from the speed of that electronic equipment.

Fibre is still the best and cheapest solution for 21st century broadband. As new bolt on technology is developed it replaces the old bolt on technology. The network is upgradable, currently by 10,000 times, cheaply, quickly and easily, and with no disruption.

Because Fibre is glass sections fused (or 'welded') together, so there are no maintenance joints because the cable is one long continuous length from end to end between the few devices sharing & collecting connections.

Terminating the optic fibre at a node slows the speed down drastically, not because electrical signals don't travel quickly down copper, but because they fade so very fast. The node is a giant signal interchange akin to a 12 lane highway downgrading to a goat track.

A goat track that is old and 5 times more expensive to maintain. The maintenance is needed because of the many old, tired joints that need to be "oiled" regularly. The windy, small goat track is jammed with vehicles all the time and handling the traffic, especially getting on and merging into the "freeway" is constantly like the worst traffic jam you've ever seen: it slows everyone down incredibly.

The people who are being slowly sent the data through these outrageous traffic james are not happy. They will be the ones doing the bleating about the awful state of the "goat track" and that it will take tens of billions and yet more decades to correct a monumental, predictable and foreseeable disaster.

Deliberately putting the taxpayers of this country into $30 billion of debt to build the worlds' Greatest Permanent Traffic Jam, and knowing it can never pay its way, for the sake of a slogan "Cheaper, Sooner and Unprofitable", is the ultimate in cynical and manipulative political moves.

Australians have waited since 2002, when Telstra first got into financial trouble, for the Liberals to step up and provide a real broadband solution. Instead, the Coalition did nothing for years, then sold shareholder a commercial disaster, costing gullible investors $20-$40 billion in lost value: only fixed when Labor's NBN contracts were signed.

The Liberals did nothing about and cared nothing about broadband for over a decade. To now jump up and down about the direct consequences of their actions and inaction and somehow claim "we need broadband now!" is the ultimate in political hypocrisy.

Turnbull and his mates deliberately and knowingly created the current mess that Labor is fixing. Of course they want to nobble broadband in Australia and destroy the NBN, especially commercially.

That's why Turnbull and his cronies won't release any of their charges & assumptions, any of their financial forecasts or have their proposal scrutinised by independent experts. The only intent of the Turnbull Copper/Node Plan is to make losses that are unprecedented in Australian history and then turn around and blame Labor.

This is why Turnbull has only revealed 5 years of his 30-year financial forecasts: his Copper/Node Plan can only make a loss and it will be truly monumental.

The Confabulous Mr Turnbull: 1925 airships, not Big Jets, are "leading edge" technology

Confabulate: fabricate imaginary experiences

All you have to know about the copper Telephone services that Turnbull is so desperately trying to protect even though he doesn't own them, is they were specified in 1925 to carry voice 4,000 Hz signals only, not the 17,000,000 and 30,000,000 Hz needed for VDSL2. They don't cut it for any modern uses.

This standard is now called "category 2", although Australia generally uses very thin conductors which are much poorer at this higher speeds due to the "skin effect". For around 15 years, cheap 100Mbps and 1Gbps copper services have been available on copper: it's the Ethernet in all your computers. It's limited to 100m, but only works because it uses a suitable spec cable:  "category 5a" or the higher "category 6" and then four pairs, not just one. (two pairs 'up', two pairs 'down')

Turnbull knows all this very well. If you want reliable high-speed over copper, you need much, much higher spec cable and you're limited to 100m. 1Gbps over copper is no more "leading-edge" than an airship.

Turnbull also knows very well that to actually deliver his promised 100Mbps with upgrades to his fabled 1Gbps requires replacing all the Telstra cabling, 215-250,000 kilometres of "10-pair", with cat-5a or cat-6 cable. It's cheaper to run new fibre than drag out all the old cat-2 telephone cable and replace it with what's needed. We know this because nobody, anywhere, uses cat-2 telephone cable for their internal data networks commercially. Not even Telstra, that owns the copper and has the most experience in using it and getting the most out of it.

The analogy in aviation would be for rigid airships, which the USA abandoned in 1925 (Germany kept their 'Zepplins' until the 1937 Hindenburg disaster). While there are airships around now, and they are "high-tech" plus comparatively faster than those from around a century ago, they are curiosities, only viable for stunts, sight-seeing and flying TV cameras around cricket grounds for 5 days.

Compare those airships to modern fourth generation jet aircraft, the "Big Jets" like the A380. They may have "closed the gap" on speed by 20%, from 50 knots to 60 knots, but that's so laughable as to be absurd.

The Comet and 707, 1st generation passenger jets, beat the pants off the pinnacle of fifty years of development of petrol engined passenger & transport aircraft. The A380 and 787 'Dreamliner' beat the pants off those 1950's aircraft in every dimension but one. Their top-speed is 2-5% lower, but their greater range shortens long-haul trip times. No more landing to refuel every two hours.

Anyone who, like Turnbull, seriously argued that the world of commercial passenger aviation was going to be revolutionised by "leading-edge" airship technology, would be laughed down. It is such an absurd proposition as to be lunacy.

I've cited Turnbull before on his confabulations, with quotes taken from a Business Spectator article.
Five years ago, there was a "very big difference" in service level between ADSL2+ and fibre to the premises, he said.
But in recent years, "that difference has compressed".
"There is a point at which increases in speed cease to have any marginal utility."
Turnbull's flight of fantasy may be technically accurate, ADSL and VDSL have closed the speed gap on GPON, but is wholly misleading, incomplete and irrelevant. All the speed improvements come at an increasingly high cost for every declining returns. Even if you were given the copper for free, as Turnbull expects, it's a really expensive option that continues to consume boatloads of money with comparatively nothing to show for it. Increasing from 50 Mbps to 100 Mbps for $200 each end is very expensive. The sly dog that he is, Turnbull doesn't mention extra costs he'll force onto consumers.

For that $400, paid for completely by NBN Co not forced onto customers, you'd expect next generation Fibre for Customers Access to run at least at 40Gbps, already widely in production. Turnbull will buy 50Mbps for $400, while real broadband, Fibre, will deliver one thousand times that, for the same price or less. Is this the best political con job Australia has seen? I reckon so!

The reason the GPON standard hasn't bothered to define transceiver speeds higher than 2.488Gbps is not technical limits, like the ADSL/VDSL pushed by Turnbull, but because there's no demand yet from Telcos.

When there's demand from Telcos for Customer Access Network rates higher than 1000/400Mbps, the same Fibre infrastructure can be quickly, cheaply and transparently upgraded, not by just a few percent, but by 10,000 times right now.

Fibre Optic links have two parts:
  • An incredibly clear glass conduit that carries any signal pushed down it, both ways at once, and
  • Optical transceivers at either end, that are cheap and quickly/easily upgraded for higher speeds.
I've written about current production transceivers, with CISCO selling a 100Gbps system that supports 96 simultaneous colours for 9.6Tbps. Unlike Turnbull's claims of systems "in the Lab" that may possible be available in 5-10 years, these are in production now.

This is the real future of Broadband: "adequate" speed, guaranteed for the next 50 years, with nothing more to do that swap out a transceiver or replace the customer terminal.

Copper was a good temporary solution when it was posited by Sol Trujillo in 2005 and the Howard ministry that Turnbull was in, did nothing, and continued to do nothing and actively oppose broadband past the 2010 election until now. Copper is now so dead that even the vultures aren't circling anymore.

NBN: The slam-dunk economic reasons for Fibre.

The current NBN Co design of Fibre to the Premise, FTTP, isn't just technically superior. When you do the Maths properly, it is also economically and financially superior, by a very large margin.

Since the 19-Apr-2013 NBN Co results for 50,000 active premises, we know that the current NBN Co Corporate Plan is conservative, that it is far ahead of all financial projections.

Turnbull wants us to believe the current 9.2% revenue growth by NBN Co is impossible and unprecedented. That's why he published his Copper/Node Plan 10 days before he knew absolute refutation of his propositions would be published.

Fibre services aren't "gold-plating" or "superfast", they are merely "adequate", providing the speeds needed by anyone with the needs and means. Turnbull, as a good used car salesman, knows he's selling an inferior product, so has to pitch his product as "normal" and his competition as "gold-plated".

Not only is NBN Co exceeding the assumptions underpinning the 9% growth Turnbull disputes, we have a perfect model, in Australia, for sustained long-term Telecommunications growth at least this fast: the 'other Telco', Overseas Telecommunications Commission, from 1970's until merged into Telstra in 1992, dropped the price of international calls every year while increasing profits. NBN Co won't grow at 9%, it will grow faster.

The whole economic base of the NBN Co plan is simple and sound:
  • focus on providing services customers want to where you make money, the top 30% of high-demand users, and
  • provide "model options" for customers, just like every other commercial product, not the Stalinist "one model, one price for everyone" approach of Turnbull.
Already, at $29.62/mth, NBN Co is achieving 85% more revenue for Fibre access than Turnbull can with his $16/mth single-price for Copper/Node Plan. By Christmas with the introduction of three new faster access rates, this will increase to at least 145% more revenue. Tiered Pricing allows consumers to express the "utility" they find in the product, not have Big Brother Turnbull and his mates decide for you what you'll want.

No surprise that by allowing people to choose for themselves, they'll pay more than any politician dreams up. Even one like Turnbull who says he knows more than any academic, consultant or ex-Telecomms person. If he believed he really was that good at Telecomms, what's he doing in Politics, not a multi-billionaire?

This leads directly to the most powerful commercial fact about Fibre and FTTP:
All NBN Co's profits are generated from the top 25% high-demand users, the rest of us, the 'other 75%', get a free-ride: we get NBN Co services at cost or heavily subsidised, most clearly seen with the 7% of services using Wireless or Satellite who'll be hung out to dry under the Turnbull NBN proposal.
Rather than the "speed fiends" being subsidised by battlers and pensioners, it is exactly the opposite. This is one of the fairest and most equitable commercial schemes ever in Australia.

So good, that the NBN Co plans include reducing those access charges, in real terms, by 19%-26% by 2021 and by 51%-89% by 2040. Pensioners and Battlers will pay $11.75, in real terms, for a 100/40Mbps service then, and NBN Co will still achieve it's 7% Return on Investment to all taxpayers to benefit from.

Turnbull won't release the access charges used in his model, and only demands a 10% reduction in them "in 10 years", presumably by 2024. A much, much poorer result economically. My modelling shows that even if Turnbull pays Telstra nothing, at the of the 20-year life of his Copper/Node Plan, it won't have paid the taxpayer back a cent, but will have made at least $10 billion in losses.

The single most important social and economic change that real universal Broadband delivered by Fibre brings is "Telehealth".

For $500-$750/year, the Department of Health and Ageing can put a reliable "adequate" connection in every house of the chronically-ill or the frail aged, with nothing for them to pay.

Because Fibre includes a 4-port Network Termination Device (NTD), that allows new services to be reliably connected by unskilled people, like Community nurses, without needing an existing Internet services, without creating a horrifying security mess and allowing a "walled-garden" where the Department supplies and supports all the equipment, remotely as is normal commercial practice since 1998, and only allows its devices to connect to its network and only its applications to run.

From their home, for nothing, this small but increasing group of people whom consume 70% of Australian Health Budget, can be fully monitored without leaving their home. They can use HD-videoconferencing to talk to Nurses, Medicos, Specialists and the many other services they need and be able to talk amongst themselves, allowing them access to social interactions without undertaking dangerous, stressful and expensive trips outside the home.

We're talking hundreds of billions in savings. Telehealth will become the most important Public Health tool since universal clean water and sanitation. Already the Australian Health Budget is over 9% (up from 3% in 1960) of GDP (cf. 18% for USA) and has passed $120 billion per year, growing faster than inflation. This is besides the $8 billion paid for Aged Care places.

With the Baby Boomers moving into retirement and increasing demands on Healthcare and Elder care and also reducing the pool of Medical professionals, we're facing a triple-crunch: more people, higher per-person costs and fewer people to look after them.

A strong, simple, robust and cheap universal Broadband service, the sort that can only be provided by full Fibre, isn't a luxury, but an economic necessity for Australia by 2025.

The Turnbull question of "what does the average person/household need 1gigabit for?" is misleading and economically disastrous. Consumers with the needs and means have shown they're more than happy to swap time (that's real money in wages) for money and the Federal Budget will, like the USA, drown in Healthcare costs unless we get serious about preventing small, correctable problems escalating into $150,000 life-threatening "incidents".

And just in case you didn't think it could get worse: When whole project costs are included, Copper is more expensive than Fibre, even if Telstra is paid nothing for its 215-250,000 kilometres of "10-pair".

The real cost of rolling Fibre past houses is $1100-$1400, not $3,600 that Turnbull likes to fling around. Turnbull estimates his Copper/Node solution will cost $900/line for 8.968M lines, or $8.1 billion.

That's at best a savings of just $4 billion, or 10%. For a spectacularly inferior service and one that's designed to be thrown away.

To this $8.1 billion, we have to add the additional in-home costs a DSL subscriber must pay compared to an FTTP subscriber. A VDSL2 modem, plus a central-splitter to ensure good performance, come in at $500-$750, direct out-of-pocket expenses for subscribers. Lets assume only 6 million houses use the DSL and then only 50% upgrade to VDSL2. That's $750 * 3 million, or around $2.5 billion more.

Then there's the quaint "50% CapEx Reuse" figure of Turnbull: he intends to waste half the Copper/Node investment on his "designed to throw-away" network. That's another $4 billion...

Turnbull can only save $4 billion constructing a temporary Copper/Node network, if he keeps his promises and completes everything else, but he then wastes $4 billion and forces another $2.5 billion onto subscribers. They have to pay for 20 years of modem replacements, upgrades and maintenance as well.

The Turnbull Copper/Node Plan will cost at least $2.5 billion more than Fibre, when the total costs are counted.
But because NTD's aren't rolled out, simple, cost-effective mass Telehealth programmes cannot happen. Those massive Health & Aged Care savings cannot be realised. The real cost is to our health and well-being.

Then there's Revenue and Expenses, leading to Profits.

Because Copper, even by Turnbull's estimates, is much more expensive to maintain, the already razor thin margins caused by his $16/mth "one model, one price fits all" regime, compare as well to the145% higher revenues & lower costs of Fibre, are further pared back to just covering interest on debt allowing breaking even on "cash flow" only, not making a profit.

On top of this, there's two major expenses that Copper/Node Plan cannot meet:

  • Depreciation (over 20 years, there's $8 billion to come up with) and
  • Repaying the $30 billion invested by the taxpayer.
So Turnbull's Copper/Node Plan costs more than Fibre, even when you leave out payments to Telstra for its assets, cannot make a profit and will leave the taxpayer holding $30 billion, or more, in debt.

Turnbull knows all this. It's why he only published 5 years (2014-2019) of his financial forecasts, not the full 30 years to 2040 in his spreadsheet model.

Thursday, 22 August 2013

NBN: Numbers from the Turnbull Copper/Node Plan

The Coalition doesn't have an "NBN Policy" for a Government expenditure program, neither does the ALP. The NBN is vitally different: it's a business and investment.

Treating the NBN as a normal policy is wholly misleading. It's a business, pure and simple.
Money is being borrowed to invest, meaning it must both break-even and pay-back, in full, and go onto make a Return on Investment (ROI).

Investments also carry risk, the taxpayer must also be prepared to pick-up the multi-billion dollar tab if things go wrong.

Turnbull is pitching the Australian voter and taxpayer to stump up $30 billion for a business he wants to create, but he's not provided the necessary key data: pay-back period, Return on Investment and downside risk.

There's a simple test of "one of the most detailed policy statements from an opposition":
Would what's been put before the Australian public be full and sufficient for either the board of a major company like BHP Billiton, or for a merchant bank like Macquarie?
The answer is a resounding No! What's needed for this pitch is a good Business Plan, including the detailed financial forecasts to 2040/2050 Turnbull has already prepared.

Whole article, including extracts, moved to ER-Edition.

Wednesday, 21 August 2013

NBN: Need for speed II - nobody 'needs more than 1Mpbs'

One of the bizarre tweets to appear on the twitter hashtag for Turnbull's Google Hangout (by SMH) yesterday was "No more than 2Mbps needed to access cloud services" (slight paraphrase). [This tweeter is blatantly pro-LNP, see their website. Another of his tweets underlines this bias/preference.]

This sentiment feeds off the meme "nobody needs more than 1 Mbps broadband!" based on a startling simple, and wrong, bit of Maths:
The average download is 30GB per month (from ABS 8153 series, Dec 2012). A 1Mbps service can carry 3,200GB/year or around 265GB/moth or just 114kbps (allowing for some TCP overhead). So nobody needs 1Mbps!
The three incorrect, simplistic assumptions in there are:
  • People use their broadband 24/7, or at 100% Utilisation.
  • Ahead of time, people know what they wish to download, there is no "think time" between downloads and they put a ZERO cost on their time when using the Internet.
  • There is an average user who is broadly represented, which isn't so with the exponential distribution of demand:
    • the low 50% of users, in total, consume just 6.4% (six point four), of downloads. The top 1% consume 10% of downloads, or 75-times more than the "average" group (and 300-600 times more than the bottom 1%)
    • So the apparent median download is really 3.84GB or 14.6kbps.
    • Therefore, for half the population, this is well within the performance of dial-up modems. According to this meme, why are half the population even interested in Broadband?
By the same logic, Sydney & Melbourne roads have no traffic congestion problems and we could save ourselves billions upon billions in road/freeway construction and upgrades:
  • The average speed over the freeways and surface streets, measured over 168 hours in a week, is very nearly 100% of the legal maximum.
  • For the majority of the week, say 145 hours, the streets have almost no traffic on them.
  • If you leave home at 3AM, you can cover 50km in very short order.
    • Therefore, people choose to suffer long commutes and they only have themselves to blame.
Unpacking the issues of Broadband Speed

The really profitable end of the market of NBN Co are the high-volume users, the top 25%-30% who consume the mean download volume or more (30GB-300GB currently).

Everyone else (75%) gets their service at cost or subsidised because of the NBN Co pricing model. That cannot happen in a "one price fits all" charging model such as the current ADSL scheme and we have to presume will be adopted by the Coalition with their Copper/Node Plan.

The tiered pricing of Fibre already allows revenue of $29.62 per service, or 85% higher than the $16/mth of VDSL/Copper's $16/mth (presumed, not disconfirmed by Turnbull). Opening higher speed services (250/100, 500/200, 1000/400) should allow $38.70, or 145% more than copper.

Customers place value on higher speeds and will pay for it: we have the proof in the NBN Co accounts already.

In a previous piece on the Need for Speed, I've included a detail calculation of the direct savings in time/wages for businesses using higher speeds. It ranges from the 50th percentile up to 25th percentile - not the really high-end demand.

Higher speeds with tiered pricing to capture the consumer surplus are just good business: it offers consumers "model choice" and increased value by reducing price per Mbps.

The actual tweet was about "Cloud Services", a major use of which is uploads, for such things as backups. These need to go much faster if the window is limited. 2Mbps over 4 hours is a measly 2.9GB. Not even half a DVD. Active video editing will produce 100's of GB to be backed up or transferred every work day.

The hidden "gothcha" with the Turnbull Copper/Node Plan is congestion at the node, as experienced in the near 20-years of Telstra RIM's in the Gungahlin Experiment. The whole point of the FTTP design is to avoid congestion within the Customer Access Network. NBN Co can cheaply and quickly improve speeds within their Transit Network, back to Points of Interconnect (PoI's) so the only congestion consumers see is from their ISP/Retailer network, outside the control of NBN Co.

Even with our maxxed out ADSL2 network, Akamai report 4-4.5Mbps as the average download speed and that hasn't changed much over the last 3 years, even though ABS reports Download volumes growing at 70%-80% per year. Consumers are already voting with their feet: they use and want more speed.

So, does anyone "need" more than 2Mbps, even for "Cloud Services"?
Absolutely, if you value your time.


Original link: ARPU proportions, Q53 pg 5, Hansard.
QoN 53: $29.62 AVC income

NBN: The Need for Speed I - the path to 1 gigabit services

I was asked to comment on a Turnbull question: "What will the average person/household ever need 1Gbps for?" There's a lot in there to unpack...

Right now, there are real uses for download speeds over 100Mbps and upload speeds of 100Mbps to match partners running 100Mbps down. Already Fibre is generating 85% more revenue per service than Copper, releasing higher speeds (for higher rentals) adds no costs and increases the revenue gap to 145% over copper. This is just good business.

While we're not very many years off Telepresence/Telemedicine applications needing real-time "haptic" (feel/force) sensors and stereoscopic HD video, that need the "trifecta" of high throughput, low-latency and zero-jitter to be rock-solid, reliable and usable professionally, there are hundreds of current uses for higher speeds.

Turnbull deliberately phrases questions, including this, to:
  • create false dichotomies
    • it's not 1Gbps but three new tiers, 250/100, 500/200, 1000/400, all at different price-points offering increasing value to customers that have the needs and means,
  • conflate terms,
    • especially meaningless undefined pseudo-scientific/statistical phrases like 'average' or 'Cost-Effective'
    • There is no "average" user. The demand distribution of broadband is highly skewed, an exponential, in fact.
      • Is 'the average' user the low 50% that use just 6.4% (six point four) of download?
      • Is it the people at 25 percentile that use the mean amount data?
      • Is it some fiction like "2 adults, 2 kids on average household earnings"?
  • confuse input and output
    • the government is running a business offering services to the public, not representing households to that business.
    • the governments first priority is to ensure that the business is fair to users, profitable and can in the long-term repay the whole of the government investment, not fail and cost the taxpayer tens of billions.
  • confuse wholesale and retail
    • the classic "$20,000/mth for 1Gbps"
    • he has implicitly included it here through his "$110 ARPU is a Great Big Price Hike" argument, when the reality is the exact opposite. It's achieved by giving consumers massive on-going discounts.
  • focus on irrelevant areas like 'households'
    • The chief beneficiaries and high-revenue (profitable) users will be business users, either small/home businesses or those for sometimes work from home. They calculate the costs and savings in time and pay accordingly. 
    • Most household are in the 75% who get a free-ride, getting NBN services at cost or below because the top 25% generate all the profit.
    • NBN is a business. It makes money by selling the same physical infrastructure at different rates, they offer real "model choice".
    • The top 25% high-demand users generate all their profits. Strategies to meet this demand and reduce "consumer surplus" are paramount.
  • create "strawman arguments"
    • it will be decades before 50% of premises use services that can only be delivered over 1Gbps.
    • well before then, the business the Liberals should be focussing on will be able to derive significant revenues from speeds over 100Mbps just by making them available.
  • hide and obfuscate the real issues:
    • customers derive real value from certainty and reliability: Fibre plans are for guaranteed speeds, both download and upload, it isn't "one price fits all" or "any speed you like so long as it's random".
    • the effect on NBN Co Revenue and
    • matching consumer demand with supply. The only economic way to supply high-speed services to the very few, very profitable users that will pay for higher speeds, is to rollout Fibre to everyone and then let them decide what they have the need and means for.
The most important misdirection of Turnbull is that the Fibre/Copper differences are about a lot more than the access rate headlined in the question:

  • 4-port NTD allows business/other sponsored connections for regular work or projects, free from interference with existing connections or forcing extra costs onto recipient.
  • Simple, quick, easy connection of additional services into unused NTD ports.
  • guaranteed quality of service through non-congenstion in NBN Customer Access Network
  • Access to higher-priority Traffic Classes, allowing real-time and streaming video to work reliably on all ISP networks
  • Guaranteed and selectable access rate, both upload and download speeds.
  • The focus on, and ability to deliver, rock-solid services of professional quality, suitable for all applications, versus the "everyone fights for packets on the same overstuffed link" of copper with only the default & lowest service class, TC4.

The whole point of tiered access is to provide real value, in the form of certainty and lower cost per Mbps, and model choice to consumer. In return, NBN Co increases its revenue from exactly the same physical infrastructure. It's just good business, which makes it very strange that the Coalition are fighting against it.

In April, NBN Co released the Revenue breakdown until 31-Mar-2013. At $29.62, it is already 85% higher than the probably $16/mth that will be charged for VDSL/Copper services.

If the 31% take-up for 100/40Mbps becomes 17% 100/40, 9% 250/100, 4% 500/200 and 1% 1000/400, the ARPU from access charges becomes $38.70, for no extra cost. This increases the Fibre advantage to 145% over he $16/mth for copper.

QoN 53: $29.62 AVC income

Business users put a price on their time and can then balance time savings against additional charges.
In the table below, I'll use $2/minute ($120/hr) as the minimum rate for business ($78,000 Avg earnings is about $60/hr, or $1/min. A business has to earn twice that to be profitable & sustainable).
I'll use 20 work-days per month.

I'll use a Retailer mark-up of 33% on Access charges. Because they bundle download volume and business users are looking for time savings, not high quotas, Retailers make significant money on unused download quotas.

The current AVC charge for 100/40Mbps is $38 wholesale, $50.50 retail (estimated). This will be used as the base for the additional cost.

To go from raw "Megabits to second" to a reasonable throughput (Megabytes/sec) value while allowing for packet overhead and some delay, I'll divide by 10, not the usual 8 bits per byte.
100/40Mbps is capable of 10MB/sec down and 4MB/sec up, or 0.6GB/min down and .24GB/min up.
This is the reference for the other plans.

Based on 30GB/month average download (ABS 8153 series, Dec 2012), the 30th percentile is the mean, or 30GB/mth. 50th percentile is 4GB/mth. Top 1% is 300GB/mth.
As of 31-mar-2013, NBN Co reports 31% take-up rate of 100/40.
No information on domestic/business split, nor on business demand and download/upload ratio.
There are 3+ million ABN's and an estimated 1 million small businesses around Australia.
As well, we know that there are a very large number of people who work an hour or more from home most nights

Break-even Savings Table at $2/min ($120/hr) 


Min/day needed-123.75
100/40 time-

Down GB/day-0.66GB1.32GB2.475GB
Down GB/mth-13.2GB26.4GB49.5GB
Percentile (est)-40%-ile32%-ile20%-ile

Up GB/day-0.264GB0.528GB0.99GB
Up GB/mth-5.28GB10.56GB20GB
Percentile (est)-47%-ile45%-ile35%-ile

60/40 Down/Up day -0.502GB1GB1.88GB
60/40 Down/Up mth-10GB20GB37.6GB
Percentile (est)-45%-ile35%-ile25%-ile

Conclusion: Right now, between one-half and one-third of all users, if businesses, would be save money buying for a link faster than 100/40. That's a very convincing business reason to make available the three speed tiers above 100/40Mbps.

There is a caveat: not all ISP's/Retailers with limited customers on a PoI will offer these higher speeds as soon as they become available. They may delay the availability per region, based on their "CVC" and backhaul provisioning in each location. As suppliers, they have an obligation to supply the service they advertise, which means having at least the CVC bandwidth of the maximum speed of their customers on each PoI. For the major carriers, this should not be an issue now.

Some applications, such as streaming a remote desktop, require higher upload speeds to match a partner's download speed: i.e. 250/100 is needed to stream to a 100/40 user.

Higher speeds are very useful right now in business and non-business video & stills production:

  • There is an increasing amount of video being shot and edited, by many individuals and organisations.
    • Hobbyists and volunteers devote considerable time and money to their work. They value their spare time very highly because they have such large time commitments elsewhere.
  • HD and 4K USB-3 cameras are cheap and common. These files, especially "raw format", get very large.
  • Avoids delivery of video project 'by petrol'. Decreases costs & time taken.

  • Raw video and images, especially photoshop with many layers are big: they need a lot of upload bandwidth when being sent
  • Important work, paid or not, cannot be replaced. People need at least 2, preferably 3 or 4, copies of it.
    • Flash drives failed, laptops & external drives are stolen, disasters/viruses happen,
  • nightly backups to 'the cloud' (dropbox or  'mega') of large files are really important. Reliably, fast uploads are critically important to an increasingly large number of people.

  • When discussing with clients questions on editing, they need to be able to see the screen in full-defnition and at full-framerate.
  • 'remote desktop' software can share whole screens, if the link is up to it.
  • This saves a lot of petrol and time, is useful right now, and gives better products.

Technical Background

1. There is NO average user

The download volume demand is highly skewed, exponential in fact. Top 1% consume 10% of download data, bottom 50% (half) consume 6.4% (six point four) - that's a 75-fold difference between the aggregate use of the two groups, 300-1000 fold between the top 1% and bottom 1%.

Mean is at around the 25-30%percentile. Which fits the 31% take-up rate of 100/40 Mbps of April 2013.

2. Download volumes don't necessarily translate to demand for raw access rate.

If your work is browsing and upload/download of work units, waiting costs you time which equals dollars for someone. At $60-$150/hr ($1-2.50/min), you don't have to save much time every day to pay for a high speed link.

 If you 'just' stream video or download know files, you can get away with a comparatively small pipe

 If you have a server that backs-up overnight, it needs enough upload bandwidth to finish in its 'time window'.

  • Raw line access rate isn't what the ISP/Retailer can actually deliver through the whole chain.
  • This isn't sustained throughput & latency (or round-trip time/delay)
  • ISP's make their money through congestion. They have 'contention' ratios of 60-100:1.
    • 'contention' also called 'over-subscription', the ratio of backhaul to sum of all customer link speeds]

3. Only 0.1% of people 'need' more than 1Mbps for an average 30Gb/mth download. [false meme]
The average for the low half of users is 384GB or 14.6kbps continuous (24/7). Full developed in a later piece.

This addresses a fundamental problem of Telecommunications:
all individual's traffic is very bursty & highly variable in demand.This is more so with Broadband.
Addressing the Need for Speed, Answers:

1. Throughput (download volume)

 Right now, home businesses and people who take work home, can cost-justify higher rates, as per the "break-even table".

Domestic streaming of 4K TV will also benefit from 100/40 and 1000/40. More "headroom" on downlink and uplink gives a better service, all other things being equal.

There's a subtle problem for ADSL/VDSL using current encapsulated "PPPoE" (versus a direct IP connection to the Internet on Fibre, packets are hidden until in the ISP premises). The download speed is controlled by the available upload bandwidth, this is worse with larger asymmetry between Download and Upload speeds. Each packet has to be "acknowledged" when received, so the sender doesn't flood the link or run too slowly. If the uplink is 100% busy, especially with Big packets (at 1Mbps, 1500by has packetisation delay of 15msec, an age in network terms).

If someone decides to upload 100MB of pictures or video during peak TV time, the download speed of a 12/1Mbps service effectively become 1-4Mbps with at least 8Mbps inaccessible: little 'ack' packets have to wait in line behind the monster upload packets.

2. Latency and Round-trip time (delay) - relied on by Real-Time services (video, telephone, ...)

The flipside of Throughput is 'latency', either one-way or round-trip. The time it takes packets to reach their destination and for acknowledgements, if sent, to return.
But high access rate does not translate to low latency (you want low latency, just talk to someone on a Satellite link. Speed is OK, latency travelling to stationary orbit and back is around a second.)

This is why NBN Co offers four Traffic Classes (TC1-TC4), or priorities.
These are 2-bits in the packet header, the routers first send all TC1, then all TC2, ... and lastly all TC4 packets that it has stored in its buffers, waiting to 'get on' the backhaul link to the ISP.

Normal data is the default "TC4" - lowest priority.

High-speed links don't correlate that well to low-latency, but there is one effect linking speed and latency: packetisation delay.

 One component of latency is "packetisation delay". It affects every single 'hop'. Packets are sent, stored and checked by the next device in the chain, then sent onto the next device until after 15 or more hops, they arrive on the other side of the world. But the speed of intermediate links can be very fast: 100Gbps.

 Because there are many hops and each hop, roughly, equates to two full packetisation delays - the time it takes to put the full packet, data + headers, "on the wire". At 12/1Mbps a 1500byte (1.5kB) packet will take 1.25milliseconds just to send down the wire. It's 0.156msec for 100/40Mbps and 0.0156msec for 1000/400Mbps.

 There are many things that affect latency, mostly under the control of the ISP, some are 'upstream' and out of their control (eg far-end and international links). Which is where the traffic prioritisation comes in... You can pay for priority for your packets if you have the need and means. This isn't available in the design of VDSL2 as released.

 There are many applications that need low and consistent latency ( or low "jitter"): voice (telephony) and streaming video/media, especially multicast. Which is why the embedded Telephone Adapters in Fibre NTD's run at TC1 and multicast video is broadcast at TC2.

The slam-dunk for Fibre over Copper is the traffic prioritisation. The current VDSL model will give everyone a single link at TC4.

New applications like interactive maps, Geographical Information Systems, Robotics (telemedicine and more) and 'telepresence' require guaranteed low-latency or things "turn to mush" very quickly. You don't want to be in the middle of sensitive operation, surgery or flying a remote aircraft and have "buffering" messages appear.

Telemedicine, if it includes HD-video communications (monaural or stereo), needs both low-latency and high-bandwidth.

The 5%-10% (?) of patients with chronic illnesses already consume 50% of GP services and 70% of total health expenditure. Being able to better monitor and respond quickly to conditions of concern is vital to lowering our $120+ billion health care budget

The Department of Health can spend $30/mth on 25/5Mbps service for pensioners with many GB included and supply & install a router, laptop or tablet, TV+camera and support them for $500-$750/year. That's around one tenth of a day in Hospital.

With a 4-port Fibre NTD, this is trivial for a semi-skilled worker, like a community nurse, to install and get right, first time. There is no problem with link speed or VDSL ISP or errors/dropouts, usage caps or the person (on a pension) not being able to afford it...